New York: Citigroup reported a massive jump in quarterly profit as a sharp drop in legal costs and gains from the disposal of unwanted assets masked weak revenue from its core business.
Shares of Citi, which was displaced by Wells Fargo and Company as the number three US bank by assets, fell as much as 7.2 per cent to a near three-year low of $42.11 yesterday.
US banks struggled to grow their revenue last year, hurt by near-zero interest rates, a slump in oil prices and investor cautiousness due to worries about slowing growth in China.
Most banks have resorted to aggressive cost controls to boost profits and Citi was no different. The bank has also been exiting less profitable markets and businesses.
Adjusted revenue from its main Citicorp business declined 2pc in the fourth quarter, but lower costs helped the unit increase profit.
“It is almost impossible to specify what the ‘true’ operating results were,” Oppenheimer analyst Chris Kotowski wrote in a note.
The bank’s legal and repositioning costs plunged to $724 million from $3.55 billion, a year earlier. Total expenses fell 22.8pc to $11.13bn.
Costs cuts and a smaller legal bill also helped JPMorgan Chase and Company report a 10pc rise in quarterly profit, and the largest US bank by assets forecast incremental increases in the amount set aside for losses on loans to the energy sector this year.
Citi set aside about $250m to cover losses related to its energy portfolio and the bank said its 2016 provisioning would depend on where oil prices
Wells Fargo, the biggest US residential mortgage lender and a major lender to the energy industry, reported a 0.8pc fall in quarterly profit yesterday as it set aside more money to cover bad loans.
Citi’s adjusted revenue rose 4.2pc to $18.64bn in the quarter ended December 31, but the increase came from gains on sale of assets from its Citi Holdings portfolio, which shrank 43pc.
“We have undoubtedly become a simpler, smaller, safer and stronger institution. We have sharpened our focus on target clients, shedding over 20 consumer and institutional businesses in the process,” Citigroup chief executive officer Michael Corbat said in a statement.
On Citi sliding to number four among US banks in terms of assets, chief financial officer John Gerspach said the bank was focusing on being efficient. Citi’s net profit rose to $3.34bn, or $1.02 per share, in the quarter from $344m, or 6 cents per share, a year earlier.