Last updated: January 17, 2013 6:18 pm

Citigroup shares fall after earnings miss

Citigroup missed earnings estimates after the bank, under new chief executive Michael Corbat, reported a $1.3bn legal bill and took a more negative view about credit quality.

Citi reported earnings per share of 38 cents for the fourth quarter, or $1.2bn of net income, and 69 cents a share on an adjusted basis. Analysts had expected 96 cents on the adjusted basis, which strips out charges related to staff redundancies and changes to the value of Citi’s own debt.

A year earlier Citi reported earnings per share of 31 cents, or $956m of net income, and 41 cents on an adjusted basis.

The shares fell more than 3 per cent to about $41 a share in early New York trading.

“Our bottom-line earnings reflect an environment that remains challenging – with businesses working through issues like spread compression and regulatory changes – as well as the costs of putting legacy issues behind us,” Mr Corbat said.

Included in the $1.3bn legal costs was a $305m charge related to a settlement with regulators for alleged abuse of the mortgage foreclosure process. Earnings at Wells Fargo, JPMorgan Chase and Bank of America have reflected similar charges. John Gerspach, Citi’s chief financial officer, said “the remainder is related to various US consumer ... issues”.

Citi’s earnings were also hit by a decline in loan loss reserve releases. Citi released $1.5bn in the fourth quarter last year on the back of an improved view of credit quality. Last quarter it released only $86m. Regulators have expressed concern that some banks have been too aggressive in releasing reserves.

Mr Corbat added that the bank “did make progress on several fronts”, reaching a ratio of core capital to risk-weighted assets of 8.7 per cent, ahead of some global competitors, and maintained “a very liquid balance sheet and a high-quality credit portfolio”.

Annual revenues fell from $78.4bn in 2011 to $70.2bn in 2012, though edged up discounting a credit valuation adjustment – the accounting rule that forces banks to book profits or losses based on movements in their own credit spreads. On an underlying basis, revenues rose 8 per cent to $18.7bn in the fourth quarter.

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