Citigroup reported a profit increase that was less than analysts estimated as litigation costs rose and benefits from releasing loan-loss reserves declined.
Net income climbed 25 percent to $1.2 billion in the fourth quarter, or 38 cents a share, from $956 million, or 31 cents, a year earlier, the New York-based lender said today in a statement. Earnings adjusted for one-time items including restructuring costs were 69 cents a share. Twenty-one analysts surveyed by Bloomberg estimated 96 cents on average, with some items Citigroup didn't include.
Chief Executive Officer Michael Corbat, 52, took over in October and last month announced plans to eliminate about 11,000 employees and pull back from some emerging markets, undoing part of the expansion strategy of his predecessor, Vikram Pandit. Litigation costs included $305 million from a settlement between U.S. banks and federal regulators, who were probing claims that lenders improperly seized homes.
"New management won't mind sacrificing a little earnings in the fourth quarter to help make 2013 earnings goals easier to hit," Marty Mosby, an analyst in Memphis, Tennessee, with Guggenheim Securities LLC, said before earnings were released. "They really aren't going to be held accountable for what happens in the fourth quarter."
Citigroup gained 21 percent in the quarter in New York trading, the second-best performance after Charlotte, North Carolina-based Bank of America (BAC) on the 24-company KBW Bank Index. (BKX) The stock climbed 50 percent in 2012, its biggest increase since 1999.
The stock has advanced 16 percent since Citigroup directors installed Corbat as CEO in October to replace Pandit. The board concluded that Pandit had mismanaged the firm's operations, including his failure to get Federal Reserve approval to increase dividends or introduce share buybacks, a person familiar with the matter said at the time.
Corbat's plans to overhaul the bank's operations include the appointment of Jamie Forese and Manuel Medina-Mora as co- presidents. Forese, 49, is now in charge of all institutional businesses, including trading and investment banking, while Medina-Mora, 62, continues to run consumer banking.
Forese oversaw a rebound in trading and underwriting revenue as investors sought out some riskier assets with greater potential returns during the quarter.
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 percent 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 Charles Peabody, an analyst in New York with Portales Partners LLC 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 Chase, 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 (WFC), No. 4 in the U.S., made $5.09 billion during the period as lending increased, the San Francisco-based company said last week.