Sunday, January 18, 2015

Citigroup (C) Q4 2014 Earnings

On January 15th Citigroup posted fourth quarter and full year 2014 earnings.

On revenue of $17.8 billion net income was $350 million or $.06 per share on expected $.09, depressed mainly from a one time legal and re-positioning charge of $3.5 billion.  Net credit losses declined 12% yoy to $2.2 billion, and Citi's Net Interest Margin increased to 2.92%.  The company utilized another $200 million in Deferred Tax Assets (DTA), bringing full year DTA utilization to $3.1 billion.  The Basel 3 Common Equity Tier One Capital Ratio came in at 10.5%, with Supplementary Leverage Ratio (SLR) of 6%.  Citi grew tangible book value roughly 1% to $66.16.

These results portray expected expenses due to the settlement of fines with the Department of Justice, and FINRA. While hurting earnings in 2014, these settlements put the Great Financial Crisis in the review and sets Citigroup up for future success. A continued tough trading environment has led to an industry-wide headwind, although that has picked up by mid-December and into 2015.  Citi Holdings (bad assets) has turned profitable for full year 2014, a big surprise as Citi holdings was expected to continue to drag on earnings (now only 5% of assets).  Citigroup and other large banks submitted their capital plans to the NY Federal Reserve the first week of January, which is expected to include a request of a modest dividend increase to $.05 up from $.01, and about a $10 billion share repurchase program.

Large banks have had a rough time in 2014 as low market volatility has depressed trading revenue, and a continued low interest rate environment has depressed net interest income.  Citigroup has down a good job of slimming operations in stagnant consumer markets such as Japan. Hopefully regulators will pass Citigroup for the first time in three years if they have met the Fed's standard on internal controls.  Passing this year's stress test, which will be announced in March, is vital for Citigroup so they can return capital to patient shareholders.

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