Investment Banking Propels Citigroup's Fourth-Quarter Profit -- Update

By David Benoit 

Citigroup Inc. on Tuesday said fourth-quarter profit rose 15% and beat expectations on a surge in its investment banking operations.

The New York bank posted profit of $4.98 billion, or $2.15 per share. That included a per-share $0.25 gain thanks to a tax boost. Analysts had expected $1.81 per share, not including the tax gain, according to FactSet. A year earlier, Citigroup had earned $4.31 billion, or $1.64 per share.

Revenue rose 7% to $18.38 billion from $17.12 billion a year earlier. Analysts had expected $17.9 billion.

In the consumer bank, revenue rose 5% to $8.46 billion and profit rose 12% to $1.58 billion. The corporate bank's revenue and profit both rose 10%, to $9.38 billion and $2.88 billion, respectively, bouncing back from a weak period a year ago.

The gains helped propel Citi above its promised profitability targets, which analysts had widely expected it to miss.

The bank's return on tangible common equity, which measures the profitability of its assets, was 12.1% for the full year.

Citigroup had targeted 12% for all of 2019 and the bank looked on pace for that, "or darn close," Chief Financial Officer Mark Mason told skeptical analysts in September.

Analysts will likely still seek an update on the 2020 promise to hit 13.5%, but beating the 2019 target will provide a dose of credibility to Chief Executive Michael Corbat's plans.

Mr. Corbat has said the bank is making important progress on profits and that he wouldn't sacrifice investments in the business to hit a few targets. He and Mr. Mason have warned the 2020 economy isn't what they expected when they set the target.

Citigroup's stock rose more than 50% in 2019, outpacing rivals in the KBW Nasdaq Bank Index and the broader market. Still, it trades at lower valuations than peers, which analysts have blamed on lower returns than the industry.

Shares rose 0.3% in premarket trading Tuesday.

In the consumer bank, revenue from card offerings rose 6% to $5.34 billion. Retail banking revenue rose 3% to $3.12 billion. Citigroup set aside $1.99 billion, up 8%, to handle potentially souring consumer loans.

In the corporate bank, investment banking revenue rose 6%, proving a surprise from the flat forecast Mr. Mason gave only in December. Its equity underwriting business led the gain, up 33%, boosted by work on some big public offerings such as Alibaba Group Holding Ltd.'s Hong Kong listing and Saudi Arabia's record-breaking Aramco IPO. Its business advising clients on mergers and acquisitions fell 19%.

In markets, total trading revenue was up 31%, benefiting from the easy comparison. Year-ago results were hampered by dismal trading across the industry, particularly in bonds, when market turmoil dried up volume. Revenue in fixed-income trading jumped 49%.

That more than offset a weak period for equities trading, which fell 23%. Citigroup has been investing in building a bigger equities trading division but has been buffeted by a shrinking industry.

Revenue from treasury and trade solutions, which helps companies manage money around the globe, rose 2% to $2.61 billion. The business has benefited as companies seek to maneuver their supply chains to keep pace with global trade fights.

Expenses rose 6% for the quarter but were flat for the full year, hitting another target Mr. Corbat had set.

Across the company, Citigroup's North America revenue rose 7% while it had big gains in Asia, up 10%.

Write to David Benoit at [e-mail]

(END) Dow Jones Newswires

January 14, 2020 08:59 ET (13:59 GMT)

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