Citigroup Earnings Hit by $4.66 Billion in Charges from Overseas Divestures and Banking Crisis

Citigroup reported better than expected adjusted fourth quarter earnings Friday before the market open along with three of the largest U.S. lenders, Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC). Citi’s institutional services operations, U.S. personal banking and investment banking performed well, according to the bank. However, prior to adjustments, charges of $4.66 billion, or $2 per share hit quarterly earnings and Citigroup posted a $1.8 billion loss for the quarter. The charges were tied to overseas risks, last year’s regional banking crisis as CEO Jane Fraser’s corporate overhaul plays out. Citigroup in addition said it expects to reduce its headcount by 20,000 and incur up to $1 billion more in severance costs over the medium term.

Citigroup

Citi reported along with three of the largest U.S. lenders. There were mixed results at the close; Wells Fargo (WFC 47.40, -1.64, -3.3%), Bank of America (BAC 32.80, -0.35, -1.1%), JPMorgan Chase (JPM 169.05, -1.25, -0.7%) were lower while and Citigroup (C 52.62, +0.54, +1.0%) was higher. BlackRock (BLK) also reported. Notably all exceeded consensus earnings estimates for the December quarter and didn’t sound any real macro alarm bells.

Citigroup Q4 2023 Earnings

Q4 2023 earnings released at 8:00 a.m. ET; conference call at 11:00 a.m. ET via live webcast and teleconference.

Highlights

  • Citigroup Q4 23 Earnings:
  • Adj EPS: $0.84 (est $0.78)
  • Revenue: $17.44B (est $18.68B)
  • Total Deposits $1.31T
  • Total Cost of Credit: $3.55B
  • Citigroup said revenue rose 2% after excluding the effect of divestitures and charges tied to exposure to Argentina.

CEO Fraser called her company’s performance “very disappointing” because of the charges but said Citigroup had made “substantial progress” simplifying the bank last year.

C: Stock Market Reaction

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Net Interest Income Benefit

Citi benefited from net interest income and now has the opportunity to extend duration at higher rates. Net interest income hit a fifth straight record.

Higher Interest Rates Increase Revenue …. But at a Cost

With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues rose from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.

Tighter bank lending will be compounded by a pullback in “private Credit” and other non-bank lenders. This is particularly problematic for earnings and loan quality for small and mid-sized banks that have operated so aggressively in real estate finance over recent years. Office buildings are an obvious trouble spot, but commercial real estate in general is vulnerable. Cracks are appearing in the booming nationwide apartment marketplace, and there are indications of waning institutional interest in residential housing.

Citigroup Last Quarter Earnings

Outlook

On Friday, Citi said it expects to cut its headcount by 20,000 and post up to $1 billion in severance costs over the medium term. The CEO announced plans for a sweeping corporate reorganization in September after previous efforts failed to boost the bank’s results and share price.

Citigroup previously said it would exit municipal bond and distressed debt trading operations as part of the streamlining exercise. Earlier this week, the company said it booked bigger charges in the quarter than previously disclosed by Chief Financial Officer Mark Mason. The distressed-debt group, which trades the bonds and other securities of companies in or approaching bankruptcy, employs about 40 people, said the people, who declined to be identified speaking about strategic moves.

Citigroup’s Competitors Q4 Earnings:

Source: Citigroup, TC, WSJ

From The TradersCommunity Research Desk