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Citigroup (C) Q4 Earnings Beat Estimates on Top-Line Strength

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Citigroup (C - Free Report) delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 for the quarter handily outpaced the Zacks Consensus Estimate of $1.82.

Including one-time gain, net income was $5 billion or $2.15 per share compared with the $4.3 billion or $1.64 per share recorded in the prior-year quarter.

Citigroup recorded higher revenues riding on consumer banking, investment banking and market revenues during the reported quarter. Though equity market revenues disappointed on a more challenging environment in derivatives, fixed income revenues were on an upswing. Moreover, investment banking revenues increased on strong underwriting business, partly muted by lower advisory business. Further, loans escalated.

However, rise in expenses was on the downside. Moreover, cost of credit soared.

For full-year 2019, net income came in at $19.4 billion compared with the $18 billion recorded in 2018.

Expenses Flare Up, Revenues Improve

For full-year 2019, the company reported revenues of $74.3 billion, up 2% year over year. Moreover, it outpaced the Zacks Consensus Estimate of $73.7 billion.

Revenues were up 7% year over year to $18.4 billion in the fourth quarter. The reported figure also beat the Zacks Consensus Estimate of $17.7 billion. Higher revenues, both from Global Consumer Banking (GCB) and Institutional Clients Group (ICG), mainly led to this upside.

GCB revenues increased 5% year over year to $8.5 billion. Higher revenues in North, Latin America and Asia GCB resulted in this upsurge. Notably, both retail banking and card revenues escalated.

In the Institutional Clients Group (ICG) segment, revenues came in at $9.4 billion in the quarter, up 10% year over year. Higher investment banking and fixed income market revenues were partly offset by lower equity market revenues.

Corporate/Other revenues came in at $542 million, up 8% from the prior-year quarter. This upside stemmed from gains on investments, partly underscored by the wind-down of legacy assets.

Operating expenses at Citigroup escalated 6% year over year to $10.5 billion. Rise in compensation and volume-related expenses, along with continued investments in the franchise, were on the downside. These were partly negated by efficiency savings and the winding-down of legacy assets.

Stable Balance Sheet

At the end of the October-December quarter, Citigroup’s end of period assets was $1.95 trillion, down 3% sequentially. The company’s loans inched up 1% sequentially to $689 billion. Deposits were down 2% sequentially to $1.07 trillion.

Credit Quality: A Mixed Bag

Citigroup’s costs of credit for the December-end quarter were up 15% year over year to $2.2 billion. This upswing largely underlines the elevated net credit losses of $1.9 billion and a credit reserve build of $253 million, and provision for benefits and claims of $25 million.

Total non-accrual assets increased 12% year over year to $4.1 billion. The company reported a drop of 10% in consumer non-accrual loans to $1.8 billion. Yet, corporate non-accrual loans of $2.2 billion surged 45% from the year-earlier period.

Citigroup’s total allowance for loan losses was $12.8 billion at the end of the reported quarter, or 1.84% of total loans, compared with the $12.3 billion, or 1.81%, 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 11.7%, down from the prior-year quarter’s 11.9%. The company’s supplementary leverage ratio for the quarter came in at 6.2%, down from the year-earlier quarter’s 6.4%.

As of Dec 31, 2019, book value per share was $82.90, up 10% year over year, and tangible book value per share was $70.39, up 10% from the comparable period last year.

Capital Deployment

During 2019, Citigroup repurchased about 264 million of common stock. The company returned around $22.3 billion to common shareholders as common stock repurchases and dividends.

Notably, during the fourth quarter, the company bought back about 69 million of common stock and returned around $6.2 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results even this time around, despite being unfavorably impacted by lower equity market revenues and disappointing advisory business. The company exhibits capital strength, which continues to support its dividend and share-buyback program.

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 rising revenues, as well as anticipated ease of regulations.

Nevertheless, several legal hassles remain concerns for the company. Furthermore, higher credit costs are another concern. In addition, rise in expenses is a headwind.

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 major banks, Goldman Sachs (GS - Free Report) , U.S. Bancorp (USB - Free Report) and Bank of America (BAC - Free Report) will report their quarterly numbers on Jan 15.

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