Citigroup earnings miss estimates on litigation, reserves

Trading Rebound

Forese oversaw a rebound in trading and underwriting revenue as investors sought out some riskier assets with greater potential returns during the quarter. Still, revenue at some of the businesses fell short of analysts’ forecasts.

Citigroup’s revenue from trading fixed-income products increased 58% excluding accounting adjustments to $2.71 billion from a year earlier. That was less than the $3.12 billion predicted by JMP’s Trone.

The fourth-quarter result showed “lackluster fundamentals,” Trone wrote in a note to clients. “Even after taking out negative items, Citi struggled to deliver much profit.”

The equities-trading business, overseen from London by Derek Bandeen, almost doubled revenue from a year earlier to $455 million. Moshe Orenbuch, an analyst in New York with Credit Suisse Group AG, had estimated $490 million.

Junk Bonds

Citigroup was the top underwriter in the quarter of junk bonds, which are rated below BBB- by Standard & Poor’s. The bank overtook New York-based JPMorgan Chase & Co. to take the top spot as companies sold almost $130 billion of the risky debts, more than triple the amount sold in the last quarter of 2011, according to data compiled by Bloomberg. Firms sold more junk bonds in 2012 than they have since at least 1999, the data show.

The bond-underwriting division, overseen by Tyler Dickson, also kept its position as the third-biggest underwriter of U.S. investment-grade debt as issuance swelled 53% to $227 billion, the data show. While the firm slid to fifth from fourth among emerging-market bond underwriters, Citigroup increased its share of that market as debt sales jumped to $356.1 billion from $251.2 billion a year earlier.

“You had a record issuance of debt, particularly high- yield and investment-grade debt,” said Portales’s Peabody, who has an underperform rating on Citigroup shares. “A lot of that debt was international companies and that’s where Citi has a relative advantage.”

JPMorgan, the biggest U.S. bank, posted net income of $5.69 billion yesterday on gains from the mortgage business. Bank of America, the second-largest lender, reported a $732 million profit earlier today.

Wells Fargo & Co., No. 4 in the U.S., reported $5.09 billion in profit for the period as lending increased, the San Francisco-based company said last week.

Bloomberg News

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