EDITOR NOTE: If you’ve been following the Q4 earnings season that’s just now unfolding, then you’ve likely caught the big-name reports, most of whom are banks, as that industry tends to kick-off earnings each quarter. Citigroup topped analyst expectations in a dramatic fashion. They basically released $16.7 billion in funds reserved for “loan loss provisions.” They’re not the only bank to do this. What this is saying is that banks are no longer setting cash aside in anticipation of loan defaults. Why not? Because the economic recovery is here; the vaccine is going to save the economy, and life will go back to normal. How many times have banks underestimated significant risks; dangerous circumstances that are obvious? COVID isn’t over, yet. Vaccine rollouts have just begun; their efficacy has yet to be seen. Millions of Americans are still unemployed, and millions more join every month. What’s happening here is that banks are putting their customers’ funds at risk in order to prioritize shareholders’ returns. That’s what this is about. And it gives us yet another reason why not to trust them.
Citigroup said earnings fell 7% to $4.63 billion, or $2.08 a share, compared with the $1.34 a share expected by analysts surveyed by Refinitiv. Companywide revenue fell 10% to $16.5 billion, below the estimate of $16.7 billion.
The bank released $1.5 billion in reserves for credit losses, a move that was bigger than analysts had expected. That compared with a reserve build of $436 million in the third quarter and $253 million a year earlier. As a result, credit costs in the period were more than $2 billion less than a year earlier.
Last year, banks set aside tens of billions of dollars for loan-loss reserves on the expectation that Covid-related shutdowns would force customers large and small to default on loans. Now, it appears as though the industry has turned a corner and will begin releasing some of those reserves, boosting profit and their ability to repurchase stock this year.
“As a sign of the strength and durability of our diversified franchise, our revenues were flat to 2019, despite the massive economic impact of COVID-19,” outgoing CEO Mike Corbat said in the release.
Citigroup shares fell 2.5% in premarket trading Friday.
Citigroup made history when it announced Jane Fraser was taking over as CEO, making it the first big Wall Street bank to be run by a woman. Now, weeks before she succeeds Corbat, Fraser is expected to address investors and analysts for the first time on Friday. Shareholders want to hear how Fraser, a former McKinsey partner who ran Citi’s Latin American operations before becoming president in 2019, will improve returns at the company.
Citigroup, the third-biggest U.S. bank by assets, has been hobbled by relatively poor performance compared with rivals including JPMorgan Chase. The results have frustrated investors including activist hedge fund ValueAct. The bank is also toiling under a regulatory consent order to improve its internal risk controls after it accidentally sent almost $900 million to lenders of Revlon last year.
Citigroup has said it expected fourth-quarter trading revenues to climb 15% from a year earlier, while investment banking fees should climb by 10% to 15%.
Shares of the New York based bank fell 23% last year, compared with the 4.3% decline of the KBW Bank Index.
Here are the numbers:
- Earnings: $2.08 a share, vs the $1.34 a share of analysts surveyed by Refinitiv.
- Revenue: $16.5 billion, vs the $16.7 billion estimate.
Earlier Friday, JPMorgan reported fourth-quarter earnings and revenue that exceeded estimates.
Originally posted on CNBC