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Citigroup (C) Q4 Earnings Top Estimates on Reserve Releases

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Citigroup (C - Free Report) delivered an earnings surprise of 53.3% in fourth-quarter 2020 on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

The stock declined more than 2% during pre-market trading, reflecting investors’ disappointment with the results. Notably, the full-day trading session will display a clearer picture.

Citigroup recorded higher market revenues during the reported quarter. Remarkably, the equity market revenues impressed on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. Further, fixed income revenues were on an upswing, reflecting strength in products and commodities, partly offset by lower revenues in rates and currencies.

At the same time, investment banking revenues decreased on disappointing debt underwriting business and reduced advisory revenues, partly muted by higher equity underwriting. Corporate lending was also on the downside.

Though reserve releases supported results, rise in expenses was a major drag.

Net income was $4.6 billion compared with the $5 billion recorded in the prior-year quarter.

For full-year 2020, net income came in at $11.4 billion compared with the $19.4 billion recorded in 2019.

Revenues Decline, Expenses Flare Up

For full-year 2020, the company reported revenues of $74.3 billion, in line with the prior year. The figure, however, outpaced the Zacks Consensus Estimate of $70.4 billion.

Revenues were down 10% year over year to $16.5 billion during the December-end quarter. The reported figure also lagged the Zacks Consensus Estimate of $16.6 billion. Lower revenues from Institutional Clients Group (ICG) and Global Consumer Banking (GCB), along with negative revenues from Corporate/Other, resulted in this decline.

In the ICG segment, revenues came in at $9.3 billion during the October-December quarter, down 1% year over year. Lower investment banking and corporate lending revenues were partly offset by higher fixed income market and equity market revenues.

GCB revenues decreased 14% year over year to $7.3 billion. Lower revenues in North, Latin America and Asia GCB due to the pandemic resulted in this decline. Notably, both retail banking and card revenues witnessed declines.

Corporate/Other negative revenues came in at $85 million compared with revenues of $542 million witnessed in the prior-year quarter. This downside stemmed from the wind-down of legacy assets, impact of low rates and absence of “episodic” gains.

Operating expenses at Citigroup flared up 2% year on year to $10.7 billion. Continued investments in the franchise transformation, including investments on infrastructure, risk management and controls, along with higher repositioning costs resulted in this upsurge. These were partly negated by efficiency savings and reduced discretionary spending.

Stable Balance Sheet

At the end of the fourth quarter, Citigroup’s end of period assets was $2.26 trillion, up 1% sequentially. Deposits were up 1% sequentially to $1.28 trillion. The company’s loans inched up 1% sequentially to $676 billion.

Credit Quality: A Mixed Bag

Citigroup’s costs of credit for the December-end quarter were negative $46 million compared with the $2.2 billion recorded in the year-earlier quarter. Markedly, release of allowance for credit loss (ACL) reserves in the ICG segment, aided by an improved outlook for global GDP and lesser downgrades in the portfolio, along with lower net credit losses in GCB, mainly led to this substantial decline.

Cost of credit includes reduced net credit losses of $1.5 billion and a credit reserve release of $1.5 billion, and other benefits of $22 million.

Total non-accrual assets jumped 40% year over year to $5.7 billion. The company reported a rise of 18% in consumer non-accrual loans to $2.1 billion. Also, corporate non-accrual loans of $3.5 billion jumped 61% from the year-earlier period.

Citigroup’s total allowance for loan losses was $25 billion at the end of the reported quarter, or 3.73% of total loans, compared with the $12.8 billion, or 1.84%, recorded in the year-ago period.

Solid Capital Position

At the end of the October-December period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.8%, down from the prior-year quarter’s 11.81%. The company’s supplementary leverage ratio for the quarter came in at 7%, up from the year-earlier quarter’s 6.21%.

As of Dec 31, 2020, book value per share was $86.59, up 4% year over year, and tangible book value per share was $73.83, up 5% from the comparable period last year.

Capital Deployment

During 2020, Citigroup repurchased common stock worth $2.9 billion. The bank paid around $4.3 billion to shareholders as common stock dividends.

Our Viewpoint

Citigroup delivered impressive results even this time around on reduced costs of credit. Solid market revenues (both equity and fixed-income) and equity underwriting business aided the bank, despite being unfavorably impacted by lower debt underwriting and a disappointing advisory business. The company displays capital strength, reflecting liquidity amid the coronavirus-impacted environment.

One can consider a strong brand like Citigroup to be a sound investment option for the long term, given its global footprint and attractive core business. Additionally, the company’s growth looks encouraging amid cost management. Nevertheless, several legal hassles remain concerns for the company.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. price-consensus-eps-surprise-chart | Citigroup Inc. Quote

At present, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other mega banks, Bank of America Corporation (BAC - Free Report) , Morgan Stanley (MS - Free Report) and Truist Financial Corporation (TFC - Free Report) are scheduled to report quarterly numbers on Jan 19, Jan 20 and Jan 21, respectively.


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