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Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 1.8% in fourth-quarter 2016, driven by a decline in operating expenses. The company’s earnings from continuing operations per share of $1.14 for the quarter outpaced the Zacks Consensus Estimate of $1.12. Also, earnings compared favorably with the year-ago figure of $1.03 per share.
Income from continuing operations was $3.59 billion, up 5% from the prior-year quarter.
Though the quarter witnessed decline in overall revenues, the company recorded higher fixed income market revenues, supported by an improved trading environment. Both rates and currencies and spread products improved. Also, improved performance in derivatives drove higher Equity Markets revenues. Both fixed income and equity trading surged, driven by higher volatility and increased client activity subsequent to the U.S. election results.
Further, Citigroup’s costs of credit for the fourth quarter were down 29% year over year to $1.79 billion. The decline largely reflects absence of considerable loan loss reserve builds tied with energy exposures in Institutional Clients Group (ICG), along with lower provision for benefits and claims, and reduced net credit losses.
For 2016, earnings from continuing operations per share came in at $4.74, in line with the Zacks Consensus Estimate. However, it compared unfavorably with the year-ago figure of $5.42 per share.
Higher Trading Revenues & Continued Cost Reduction
Adjusted revenues of Citigroup for 2016 were $76.10 billion, down 8% year over year. However, it surpassed the Zacks Consensus Estimate of $70.03 billion.
Adjusted revenues of the company decreased 9% year over year to $17.01 billion in fourth-quarter 2016. The fall reflected absence of net gains on asset sales in Citi Holdings, while revenues at Citicorp improved year over year. The revenue figure came below the Zacks Consensus Estimate of $17.05 billion.
At Citicorp, adjusted revenues came in at $16.36 billion in the quarter, up 6% year over year. Revenues at ICG increased 11% year over year. Notably, revenues from fixed income markets and equity markets climbed 36% and 15% on a year-over-year basis, respectively. However, investment banking revenues remained largely flat year over year.
Global Consumer Banking (GCB) revenues increased 2% year over year, mainly driven by revenues in North America GCB. The rise was partially offset by a decline in Latin America GCB revenues.
Corporate/Other revenues were negative $18 million, compared to $107 million in the prior-year quarter. The decline mainly indicated the absence of equity contribution tied with the company’s stake in China Guangfa Bank, which was divested in third-quarter 2016 and gains on asset sales recorded in the prior-year quarter.
Citi Holdings’ adjusted revenues of $657 million reflected a plunge of 79% year over year. The fall primarily underlined the absence of net gains from asset sales. However, the unit continued to report profitability. Notably, management stated that the results of Citi Holdings will no longer be reported separately.
Operating expenses at Citigroup expenses were down 9% year over year to $10.12 billion. Expenses fell 6% (in constant dollars), largely due to lower expenses in Citi Holdings owing to divestitures.
Balance Sheet
At the quarter end, Citigroup’s end of period assets was $1.79 trillion, up 4% year over year. The company’s loans inched up 1% year over year at $624 billion. Deposits increased 2% year over year to $929 billion. Citi Holdings’ assets plummeted 33% from the prior-year quarter level to $54 billion and represented just 3% of the company’s total assets at the quarter end.
Mixed Credit Quality
Total non-accrual assets increased 6% year over year to $5.8 billion. The company reported a decline of 14% in consumer non-accrual loans to $3.2 billion. However, corporate non-accrual loans of $2.4 billion surged 52% from the prior-year period, mainly related to energy-related loans in the ICG.
Citigroup’s total allowance for loan losses was $12.1 billion at quarter end, or 1.94% of total loans, down from $12.6 billion, or 2.06%, in the prior-year period.
Strong Capital Position
At the quarter end, Citigroup’s estimated Basel III Common Equity Tier 1 Capital ratio was 12.5%, increasing from 12.1% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.2%, up from 7.1% in the prior-year quarter.
As of Dec 31, 2016, book value per share was $74.26 and tangible book value per share stood at $64.57, both up 7% from the prior-year period.
Our Viewpoint
The results do not reflect an impressive quarter for Citigroup. However restructuring efforts, including streamlining moves, should continue to ease its burden on the expense base. Moreover, Citigroup exhibits its capital strength that continues to support its dividend and a share buyback program.
One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Further, the company’s growth looks encouraging amid the rising rate environment as well as potential ease of regulations under Donald Trump’s administration.
However, revenue pressure and several legal hassles remain concerns for the company.
Bank of America Corporation’s (BAC - Free Report) fourth-quarter 2016 earnings surpassed the Zacks Consensus Estimate. Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as anticipated, investment banking fees declined. Further, absence of legal costs and efficient expense management were sufficient in aiding the bottom line.
Driven by interest income, Wells Fargo & Company’s (WFC - Free Report) fourth-quarter 2016 earnings outpaced the Zacks Consensus Estimate. The company witnessed organic growth aided by strong loans and deposit balances, along with elevated interest income. However, higher expenses and lower non-interest income remained a concern.
Among other Wall Street giants, SunTrust Banks, Inc. (STI - Free Report) is scheduled to report fourth-quarter 2016 earnings on Jan 20.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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Citigroup (C) Tops Q4 Earnings, Trading Revenues Surge
Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 1.8% in fourth-quarter 2016, driven by a decline in operating expenses. The company’s earnings from continuing operations per share of $1.14 for the quarter outpaced the Zacks Consensus Estimate of $1.12. Also, earnings compared favorably with the year-ago figure of $1.03 per share.
Income from continuing operations was $3.59 billion, up 5% from the prior-year quarter.
Though the quarter witnessed decline in overall revenues, the company recorded higher fixed income market revenues, supported by an improved trading environment. Both rates and currencies and spread products improved. Also, improved performance in derivatives drove higher Equity Markets revenues. Both fixed income and equity trading surged, driven by higher volatility and increased client activity subsequent to the U.S. election results.
Further, Citigroup’s costs of credit for the fourth quarter were down 29% year over year to $1.79 billion. The decline largely reflects absence of considerable loan loss reserve builds tied with energy exposures in Institutional Clients Group (ICG), along with lower provision for benefits and claims, and reduced net credit losses.
For 2016, earnings from continuing operations per share came in at $4.74, in line with the Zacks Consensus Estimate. However, it compared unfavorably with the year-ago figure of $5.42 per share.
Higher Trading Revenues & Continued Cost Reduction
Adjusted revenues of Citigroup for 2016 were $76.10 billion, down 8% year over year. However, it surpassed the Zacks Consensus Estimate of $70.03 billion.
Adjusted revenues of the company decreased 9% year over year to $17.01 billion in fourth-quarter 2016. The fall reflected absence of net gains on asset sales in Citi Holdings, while revenues at Citicorp improved year over year. The revenue figure came below the Zacks Consensus Estimate of $17.05 billion.
At Citicorp, adjusted revenues came in at $16.36 billion in the quarter, up 6% year over year. Revenues at ICG increased 11% year over year. Notably, revenues from fixed income markets and equity markets climbed 36% and 15% on a year-over-year basis, respectively. However, investment banking revenues remained largely flat year over year.
Global Consumer Banking (GCB) revenues increased 2% year over year, mainly driven by revenues in North America GCB. The rise was partially offset by a decline in Latin America GCB revenues.
Corporate/Other revenues were negative $18 million, compared to $107 million in the prior-year quarter. The decline mainly indicated the absence of equity contribution tied with the company’s stake in China Guangfa Bank, which was divested in third-quarter 2016 and gains on asset sales recorded in the prior-year quarter.
Citi Holdings’ adjusted revenues of $657 million reflected a plunge of 79% year over year. The fall primarily underlined the absence of net gains from asset sales. However, the unit continued to report profitability. Notably, management stated that the results of Citi Holdings will no longer be reported separately.
Operating expenses at Citigroup expenses were down 9% year over year to $10.12 billion. Expenses fell 6% (in constant dollars), largely due to lower expenses in Citi Holdings owing to divestitures.
Balance Sheet
At the quarter end, Citigroup’s end of period assets was $1.79 trillion, up 4% year over year. The company’s loans inched up 1% year over year at $624 billion. Deposits increased 2% year over year to $929 billion. Citi Holdings’ assets plummeted 33% from the prior-year quarter level to $54 billion and represented just 3% of the company’s total assets at the quarter end.
Mixed Credit Quality
Total non-accrual assets increased 6% year over year to $5.8 billion. The company reported a decline of 14% in consumer non-accrual loans to $3.2 billion. However, corporate non-accrual loans of $2.4 billion surged 52% from the prior-year period, mainly related to energy-related loans in the ICG.
Citigroup’s total allowance for loan losses was $12.1 billion at quarter end, or 1.94% of total loans, down from $12.6 billion, or 2.06%, in the prior-year period.
Strong Capital Position
At the quarter end, Citigroup’s estimated Basel III Common Equity Tier 1 Capital ratio was 12.5%, increasing from 12.1% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.2%, up from 7.1% in the prior-year quarter.
As of Dec 31, 2016, book value per share was $74.26 and tangible book value per share stood at $64.57, both up 7% from the prior-year period.
Our Viewpoint
The results do not reflect an impressive quarter for Citigroup. However restructuring efforts, including streamlining moves, should continue to ease its burden on the expense base. Moreover, Citigroup exhibits its capital strength that continues to support its dividend and a share buyback program.
One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Further, the company’s growth looks encouraging amid the rising rate environment as well as potential ease of regulations under Donald Trump’s administration.
However, revenue pressure and several legal hassles remain concerns for the company.
Citigroup Inc. Price, Consensus and EPS Surprise
Citigroup Inc. Price, Consensus and EPS Surprise | Citigroup Inc. Quote
Citigroup carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
Bank of America Corporation’s (BAC - Free Report) fourth-quarter 2016 earnings surpassed the Zacks Consensus Estimate. Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as anticipated, investment banking fees declined. Further, absence of legal costs and efficient expense management were sufficient in aiding the bottom line.
Driven by interest income, Wells Fargo & Company’s (WFC - Free Report) fourth-quarter 2016 earnings outpaced the Zacks Consensus Estimate. The company witnessed organic growth aided by strong loans and deposit balances, along with elevated interest income. However, higher expenses and lower non-interest income remained a concern.
Among other Wall Street giants, SunTrust Banks, Inc. (STI - Free Report) is scheduled to report fourth-quarter 2016 earnings on Jan 20.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>