By Bradley Keoun and Michael J. Moore
Jan. 19 (Bloomberg) -- Citigroup Inc., the U.S. bank that is 27 percent owned by the Treasury Department, ended a three- quarter profit streak with a $7.6 billion loss on costs to exit the government’s bailout program.
The fourth-quarter loss of 33 cents a share was narrower than the record loss of $17.3 billion, or $3.40 a share, a year earlier, New York-based Citigroup said today in a statement. The company was expected to lose 30 cents a share, the average estimate of 18 analysts surveyed by Bloomberg.
Chief Executive Officer Vikram Pandit had to book an $8 billion pretax charge when he repaid $20 billion of bailout funds in December to avoid being left behind by rival banks that exited the Troubled Asset Relief Program. Taxpayers still own 7.7 billion Citigroup shares, and Pandit failed to restore the bank to profitability in his second full year in the top job.
“It’s been a tumultuous two years,” said William Fitzpatrick, a financial-industry analyst with Optique Capital Management in Racine, Wisconsin, which oversees about $850 million. “They’re probably done capital-raising, and investors now want some visibility on what the earnings power is.”
Citigroup may spend most of 2010 recovering from the bailout, grappling with more loan losses and pushing to sell or wind down unwanted businesses with more than $600 billion of assets, or a third of the bank’s total.
Share Price
Citigroup dropped 9 cents, or 2.6 percent, to $3.33 in composite trading on the New York Stock Exchange at 9:43 a.m. That compares with $34.77 on Dec. 10, 2007, the last closing price before Pandit was named to the top post.
“We have made enormous progress in 2009,” Pandit said in the statement. “It was our responsibility to get our own house in order. We greatly improved Citi’s capital strength, reduced the size and scope of the company, and refocused our business strategy to take advantage of our unmatched global network.”
Not counting the repayment of funds to the U.S. government, the fourth-quarter loss was $1.4 billion, or 6 cents a share.
Citigroup’s loss contrasts with results at New York-based JPMorgan Chase & Co., which said last week that profit more than quadrupled from a year earlier to $3.28 billion as investment- banking fees climbed.
Citigroup’s revenue fell 4.3 percent to $5.41 billion in the fourth quarter, the company said. The bank’s Tier 1 Common ratio was 9.6 percent, up from 2.3 percent a year earlier.
For the full year, Citigroup’s loss was $1.6 billion, or 80 cents a share.
Citi Holdings
Citi Holdings, the collection of businesses tagged for disposal, had a $2.44 billion loss in the fourth quarter. Citi Holdings assets declined $70 billion to $547 billion during the quarter.
Citicorp, the division of businesses that Pandit plans to keep, had a $1.73 billion profit in the fourth quarter, compared with a $5.52 billion loss a year earlier.
Full-year compensation fell by 20 percent to $25 billion.
Revenue from trading and investment-banking climbed 5.9 percent from a year earlier to $5.4 billion. Those figures exclude “credit value adjustments” of $1.9 billion, or losses required under U.S. accounting rules to reflect an increase in the market value of its own liabilities. The CVA for the fourth quarter included an $840 million pretax loss to correct for an error made in the way Citigroup calculated its CVAs in prior periods, the bank said in today’s statement.
Consumer Banking
Consumer-banking revenue rose 0.2 percent to $5.72 billion, and revenue in the global transaction services unit was $2.48 billion. Local consumer lending, which includes the CitiFinancial personal-loans unit, had a $2.33 billion loss from continuing operations, narrower than the $4.89 billion loss a year earlier.
Net credit losses were $7.13 billion, down from $7.97 billion last quarter. Citigroup added $706 million to its loan- loss reserves in the quarter, bringing the reserves to 6.1 percent of total loans.
“I’d be encouraged by the fact that the charge-offs are down,” Oppenheimer & Co. analyst Chris Kotowski said in a Bloomberg Television interview.
Pandit, 53, who has a Ph.D. in finance, took over in December 2007 following the ouster of Charles O. “Chuck” Prince. Pandit, who in January 2009 said he would take a salary of $1 a year until Citigroup turned profitable, personally got $165 million when he and his partners sold their Old Lane Partners LP hedge fund to the company in mid-2007.
Pandit’s ‘Honeymoon’
After two years in the top job, Pandit’s “honeymoon is over,” Saudi investor Prince Alwaleed bin Talal said last week in an interview with Fox Business News. “It’s time to deliver,” Alwaleed said.
Optique’s Fitzpatrick said Pandit probably needs to increase Citigroup’s share price to at least $5 to keep his job beyond another year. The stock closed at $3.42 on Jan. 15.
“I do think he’s on the hot seat,” Fitzpatrick said. “He just has to get back to divesting assets, trying to clean up the company as best he can, which was not the initial intent when he came on board. The markets have rallied over the last nine, 10 months, and you’ve got some buyers out there who are probably better-positioned to scoop up some of Citi’s assets.”
Citigroup is forecast to earn 9 cents a share this year, or 2 percent of what it made in 2005, based on Bloomberg’s analyst survey. That’s partly because Citigroup has had to issue almost 23 billion new shares to bolster a weakened capital base. Investors who were shareholders prior to the financial crisis were left with about one-fifth their original stakes.
Pandit sold $20 billion of shares to new investors last month to help repay the bailout funds, a move aimed partly to extract the company from executive-pay restrictions that threatened to drive away top-producing traders and investment- bankers. The government, which initially said it would sell as much as $5 billion of its shares in the offering, later scrapped the plan because the price was too low.
Stocks Rise in U.S.
By Michael P. Regan and Rita Nazareth
Jan. 19 (Bloomberg) -- U.S. stocks rose, boosted by a rally in health companies on speculation Republicans will block an industry overhaul, while Treasuries fell and a stronger dollar sent oil lower.
The Standard & Poor’s 500 Index added 0.9 percent at 10:51 a.m. in New York. Treasuries snapped two days of gains, sending the yield on the 10-year note up four basis points to 3.72 percent. The Dollar Index, which gauges the currency against six major U.S. trading partners, rallied 0.6 percent and crude retreated for a sixth day. Europe’s Dow Jones Stoxx 600 Index erased an earlier decline. British government bonds tumbled after the U.K. inflation rate increased by the most on record.
“Money is finding its way out of Treasuries and into the stock market,” said Mark Bronzo, a money manager in Irvington, New York, at Security Global Investors, which oversees $22 billion. “Investors are expecting good earnings, especially from technology companies. In addition to that, health-care stocks are rallying because a Republican victory in Massachusetts might change the debate.”
An index of health-care companies in the S&P 500 led the advance with a 1.8 percent rally. U.S. Democrats face the possibility of losing a Senate seat held for almost 47 years by the late Edward Kennedy as voters in Massachusetts go to the polls. A loss could also cost them their 60-vote Senate supermajority needed to help pass a health-care overhaul.
Ciena Corp. rallied 9 percent to lead an advance in technology companies after Credit Suisse Group AG advised buying the shares on prospects for revenue growth. As many as 65 companies in the S&P 500 are scheduled to release quarterly results this week.
Valuations Climb
The biggest stock market rally since the Great Depression boosted the S&P 500’s price-earnings multiple to 25 last week from 10.1 in March, the lowest in a quarter-century, data compiled by Bloomberg show.
The MSCI World Index of 23 developed markets added 0.3 percent after slumping 0.8 percent earlier. Companies in the measure are trading near the highest level compared with earnings since 2002, raising concern valuations may have outpaced profit growth. German investor confidence declined more than economists estimated in January as the economic recovery showed signs of losing momentum, an industry report showed.
The Dow Jones Stoxx 600 Index added 0.9 percent, reversing an earlier 0.9 percent slump.
German Confidence
The ZEW Center for European Economic Research said its index of investor and analyst expectations in Europe’s largest economy, which aims to predict developments six months ahead, fell to 47.2 from 50.4 in December. Economists predicted a drop to 50, according to the median of 37 forecasts in a Bloomberg News survey.
Cadbury Plc jumped 3.3 percent after Kraft Foods Inc. agreed to buy the chocolate maker for an increased $19.5 billion. The cost of insuring bonds sold by Uxbridge, England- based Cadbury with credit-default swaps fell 19.5 basis points to 57, the lowest level since November, according to CMA DataVision prices.
The British pound strengthened against all 16 major counterparts, gaining 1.1 percent versus the Swiss franc and 0.9 percent against the euro. December consumer prices advanced 2.9 percent in the U.K. from a year earlier, one full percentage point more than in November, according to the Office for National Statistics.
Gilts Slide
U.K. government bonds tumbled after the report, sending the yield on the two-year note 11 basis points higher to 1.31 percent.
The MSCI Asia Pacific Index declined 0.8 percent.
Aluminum Corp. of China, known as Chalco, declined 0.2 percent in Hong Kong after saying it expects to post a net loss for 2009. Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded bank, slipped 2.4 percent in Tokyo after Barclays Plc said banks’ income from lending may slump.
Losses in Asia were limited after Hong Kong’s Hang Seng Index doubled its gain to 1 percent on a report in Caijing magazine that Shanghai, China’s financial hub, is considering allowing individuals to invest abroad.
-- With assistance from David Merritt, Justin Carrigan, Stuart Wallace, Paul Armstrong and Gavin Serkin in London. Editor: Chris Nagi
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