Citigroup profits off 11% as deal appetite declines

CITIGROUP fourth-quarter profit fell 11% and missed Wall Street estimates as the European debt crisis battered capital markets, hurting trading revenue and discouraging clients from doing deals.

Citi 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.

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 & Co.

Money manager Jeffrey Sica, president of Sica Wealth Management, an independent wealth manager based in Morristown, New Jersey, which has bet against a basket of bank stocks, said Citi’s earnings miss was “horrendous” in light of how far estimates had fallen.

“It’s a very negative sign for banks in general,” said Sica.

Citigroup shares fell 3.2% inearly trading on the New York Stock Exchange, lagging the KBW banks index, which was up 0.8%.

“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.

The third-largest US bank by assets yesterday reported net income of $1.16 billion (€911 million), or 38 cents per share, down from $1.31bn (€1.03bn), or 43 cents per share, a year earlier.

Analysts, on average, expected a profit of 49 cents a share, according to surveys by Thomson Reuters IBES. Estimates were high as 76 cents a share two weeks ago.

“Citi’s numbers to come in like this, still missing even though estimates were already cut, that’s a cause of great concern,” said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.

Citi said securities and banking revenue fell 29% 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 41% to $2.9bn.

Citi Holdings, which holds assets the bank plans to sell, posted a 30% 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 about $90bn from a year earlier.

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