Jan 13 (Reuters) – Citigroup Inc (CN) on Friday reported a 21% fall in quarterly profit, missing forecasts as the bank increased provisions to prepare for a deteriorating economy and investment banking revenues faltered due to a sharp decline in deal-making activity.
Fears of a possible recession prompted Citi to add $640 million to its reserves in the fourth quarter, compared with a $1.37 billion release from its reserves in 2021, amid the absence of pandemic-related loan losses.
On an adjusted basis, Citi earned $1.10 per share for the fourth quarter ended December 31, down from estimates of $1.14 per share, according to Refinitiv.
The US Federal Reserve raised interest rates by 425 basis points from near zero last year to tame inflation, fueling fears of an economic slowdown and forcing many companies to forecast slower top-line and earnings growth.
Fed tightening helped Citi boost net interest income by 61% by charging higher rates on loans to customers.
Still, the US Federal Reserve’s aggressive stance over the past year, combined with the war in Ukraine and growing economic uncertainties, has roiled financial markets and slowed business activity. As a result, Citi’s investment banking revenues fell 58%.
Meanwhile, heightened market volatility prompted traders to reposition their portfolios, benefiting Citi’s markets business and boosting the bank’s revenue by 6% to $18 billion.
“Markets had their best fourth quarter in recent memory,” said Jane Fraser, Citi’s chief executive officer.
Under Fraser, the bank exited some foreign markets to increase its share valuation and profitability relative to peers, while improving its risk controls in line with regulatory requirements.
“Citi achieved its goal of 13.0% Tier 1 common capital faster than expected, as the bank had planned to reach that goal in mid-2023,” said Jason Benowitz, associate partner and senior portfolio manager at CI Roosevelt.
He said they believe the faster-than-expected achievement of Tier 1’s core capital target could allow the bank to resume its share buyback program earlier, which would be a positive catalyst for Citi stock.
Reporting by Mehnaz Yasmin in Bengaluru and Carolina Mandl in New York; Edited by Shinjini Ganguli and Subhranshu Sahu
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