US banking giant Citigroup on Thursday reported earnings that missed expectations by a large margin as an executive said it was too soon to say the US housing market has truly recovered.
The bank’s fourth-quarter profits came in at US$1.2 billion, or US$0.38 per share, far below the average analyst forecast of US$0.96 per share.
Revenue came in at US$18.2 billion, below expectations of US$18.8 billion. A year earlier, the bank earned US$0.31 a share on US$956 million in net profits.
Excluding accounting effects and a previously-announced US$1 billion reorganization, Citigroup said earnings were US$0.69 per share in the quarter.
Citigroup blamed the fall in part on US$1.3 billion in legal and legal-related expenses, far more than expected. That included about US$300 million of the litigation costs that were related to a settlement announced between several banks and the US Comptroller of the Currency and Federal Reserve over foreclosure processes.
Also, the bank opted to release a smaller-than-expected sum from bad-loan reserves. Whereas Citigroup in the year-ago quarter released US$1.5 billion, it only released US$86 million this time.
Total loan loss reserves stood at US$25.5 billion at the end of last year. The small writeback of loss reserves reflected Citi’s caution over the turnaround in the US housing market.
Chief financial officer John Gerspach said that while there were some positive indicators in housing, it was too soon to say the market has recovered in a “sustainable” way.
The bank said its fourth quarter numbers were also hit by a US$485 million credit valuation adjustment, which assesses the risk of counterparty default in the bank’s derivatives trade. Analysts generally discount this category in their earnings estimates.
It was the bank’s first earnings report under chief executive Michael Corbat, who was named to lead the bank after his predecessor Vikram Pandit was forced to resign in October last year, one day after the third quarter earnings release.
Pandit was blamed for the bank’s continuing poor performance, lagging its rivals in rebounding from the financial crisis.
Shares in Citigroup were down 3.4 percent in afternoon trade to US$41.04.