CITIGROUP's fourth-quarter profits fell 11pc and missed Wall Street estimates as the European debt crisis battered capital markets, hurting trading revenue and discouraging clients from doing deals.
Citi yesterday said the crisis and fears about its impact on other markets and the global economy led to a broad move by clients away from risk and a decline in market volumes around the world. Fixed income, equity markets and investment banking revenues all declined in the quarter.
"The operating environment continues to be extraordinarily challenging in a number of businesses, none more so than securities and banking," chief financial officer John Gerspach said on a conference call with analysts.
Citi's results show how investment banking units are dragging down profits for large Wall Street firms, and portend a tough fourth quarter for others such as Goldman Sachs and Morgan Stanley, which report their results later this week.
In contrast, banks that focus more on business and consumer lending are doing better as the US economy shows signs of recovery. Wells Fargo beat analysts' earnings estimates yesterday, helped by improving credit quality and loan growth.
This trend was also reflected last week in the results of JPMorgan Chase. Money manager Jeffrey Sica, president of SICA Wealth Management, an independent wealth manager based in New Jersey, which has bet against a basket of bank stocks, said Citi's earnings miss was "horrendous" in light of how much estimates had come down. "It's a very negative sign for banks in general," said Sica.
Citigroup shares fell 6pc in New York.
"Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment," Citigroup chief executive Vikram Pandit said in a statement.
Mr Pandit said the bank was cutting about 5,000 jobs and had taken a $400m charge in the fourth quarter for severance payments. The bank has about 266,000 employees.
The world's major banks have announced more than 133,000 layoffs since mid-2011 as eurozone woes take their toll on trading income and investment banking.
Citi, the third-largest US bank by assets, reported net income of $1.16bn (€910m), or 38c per share, down from $1.31bn, or 43c per share, a year earlier.
Analysts, on average, expected a profit of 49c a share. Estimates were as high as 76c a share two weeks ago.
Securities and banking revenue fell 29pc from a year earlier, excluding the accounting impact of changes in the value of the bank's debt. The profit drop came despite a lower provision for bad loans: down 41pc to $2.9bn.
Citi Holdings, which holds assets the bank plans to sell, posted a 30pc decline in revenue to $2.8bn as it continued to shed assets. Citi Holdings had $269bn in assets at the end of the fourth quarter, down $90bn from a year earlier.
Citigroup's operating expenses increased 4pc to $12.9bn in the fourth quarter. Mr Pandit said the bank expects to reduce expenses by between $2.5bn and $3bn in 2012 from the $50.7bn it posted for all of 2011. (Reuters)