Citi’s Bond Trading Misses Estimates as 2020’s Surge Weakens

Citigroup Inc.’s fixed-income traders — who propped up the bank’s earnings through much of the pandemic — missed analysts’ estimates for the final months of 2020, a sign that a wave of investor activity might not last as long as expected.

Revenue from trading bonds, currencies and commodities rose 7% in the fourth quarter compared with a year earlier, the smallest jump since the Covid-19 virus began rattling markets. The $3.09 billion generated by the business was shy of the $3.2 billion analysts projected.

“Undoubtedly we’ve seen a very strong year in 2020,” Chief Financial Officer Mark Mason said Friday on a conference call with reporters. “It’s our expectation that the wallets will start to normalize in 2021. But I will say, while it’s early in the quarter, we’ve seen things are continuing to be quite robust in the early days of January.”

The shortfall in the key division was enough to overshadow signs of improvement in other areas of bank, such as lending operations. The lender was among the worst performers in the 24-company KBW Bank Index even as company-wide profit beat estimates, helped by a $1.5 billion release of reserves for potential losses on loans. Shares fell 4.5% to $65.90 at 10:07 a.m. in New York.

Still, the results add to signs that Chief Executive Officer Michael Corbat, who declared it his mission to make the bank “boring,” will finish his tenure next month without a major earnings blowup from a pandemic that wracked much of the economy. Jane Fraser is set to take over and carry out a strategy that includes earning more from stock trading and wealth management — operations that marked progress in the final months of 2020.

“We ended a tumultuous year with a strong fourth quarter,” Corbat said in a statement announcing the results. “As a sign of the strength and durability of our diversified franchise, our revenues were flat to 2019, despite the massive economic impact of Covid-19.”

Share Buybacks

Corbat added that the firm plans to resume share buybacks in the first quarter. Mason said the firm will seek permission from its board of directors to repurchase about $1.8 billion in shares during the quarter.

Net income dropped 7% to $4.63 billion, or $2.08 per share, topping the $1.34 average ofanalyst estimates compiled by Bloomberg. Much of that disparity resulted from the lender’s decision to cut reserves for credit losses. About $1.3 billion of the release came from the institutional business, where the bank makes loans to many of the world’s largest corporations.

And in a sign that consumers also are navigating the tough economy, spending on cards jumped 12% from the third quarter, while net credit losses in the consumer business dropped 20% to $1.27 billion.

Analysts projected that the bank’s total expenses would rise as Citigroup invests in risk management and internal controls to comply with settlements reached last year with the Office of the Comptroller of the Currency and the Federal Reserve. Yet costs in the quarter inched up 2% to $10.7 billion — a bit less than estimated.

Meantime, revenue from equities trading soared 57% to $810 million, topping the $676 million average estimate. Last month, the firm reorganized the equities-trading unit, hoping to make it a top-four competitor in the industry.

Risk Taking

The results are similar to those from rivalJPMorgan Chase & Co., which reported earlier Friday that fourth-quarter profit rose 42% to a record $12.1 billion as the firm released loan-loss reserves for the second quarter in a row.

Months after unemployment spiked and corporations across the country rushed to draw down lines of credit, Citigroup’s continued earnings from trading and optimism that clients will make good on debts underscored Corbat’s years-long campaign to avoid the kinds of risk-taking that nearly toppled the company in the 2008 financial crisis. Back then, the bank took more than $140 billion in losses and writedowns as U.S. home prices plummeted. The U.S. government was forced to inject $45 billion into the lender, the largest bailout at that time.

“Looking back, I am proud of the progress the firm has made since I became CEO,” Corbat said.

In reshaping the company, Corbat has largely focused on more-staid businesses, such as issuing credit cards and handling cash for corporations.

Bank Staffing

Citigroup has just 10% of its staff back in offices across the U.S., Mason said Friday during the conference call. That compares with about 25% for the bank’s Asia locations.

“We intend to manage the return based on the data that we see as opposed to some marked date and I think that data will obviously be informed by how the vaccine gets rolled out in these different areas,” he said.

This week, Citigroup combined its consumer wealth-management and private-banking units under Jim O’Donnell as part of a strategy to provide more services to the many entrepreneurs already served by its commercial bank. In the fourth quarter, revenue from the firm’s private banking operations climbed 6% to $894 million.

“Jane has a great foundation to build upon and I am certain great things are in store for Citi and all its stakeholders,” Corbat said.

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