Citigroup provided further evidence of the adverse impact of rising short-term interest rates on US banks by reporting a 3 per cent fall in underlying earnings to $5bn in the fourth quarter.
Chuck Prince, chief executive, said the world’s largest financial services company had seen good customer volume growth and strong revenue increases, including 13 per cent underlying growth outside the US. But this was offset by “a challenging interest rate environment and competitive pricing conditions globally”.
Revenue growth slowed to 3 per cent in the fourth quarter, compared with a 5 per cent rise for 2005 to $83.6bn.
Mr Prince said he was confident that the actions taken to improve the US consumer business would pay off in the long term and that the prospects for many of its other businesses were good.
“I think 2006 is going to be a very good year,” he said.
But Mike Mayo, analyst at Prudential Financial, reduced his 2006 forecast from $4.30 to $4.20 per share to reflect continued US margin pressure. The shares fell 4.7 per cent to $45.69 in New York.
For the full year, earnings from continuing operations were $19.8bn, down 1 per cent on 2004, excluding the $5bn litigation provision that year. The fourth-quarter figures benefited from a $600m pre-tax release from the reserve for legal actions related to Citigroup’s underwriting of securities for WorldCom. This followed the recent rejection of an investor claim against Citigroup that the company’s lawyers believe will reduce its exposure in other cases. However, Citigroup has increased the provision for another, unspecified, legal action by $97m before tax.
In the fourth quarter, income from its global consumer businesses fell 23 per cent to $2.43bn, due to interest margin compression and a jump in US personal bankruptcies. But the corporate and investment bank was 21 per cent higher at $2.05bn, thanks to strong growth from equities, M&A and transactions services.
Citigroup increased its quarterly dividend by 11 per cent to 49 cents.
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