Citigroup’s new CEO, Michael Corbat, is off to a shaky start at the helm of the third largest U.S. bank.
The bank widely missed analyst projections when it reported fourth quarter earnings and revenue early Thursday, citing a challenging environment.
Citigroup’s results improved from last year but legal expenses were a big drag in the most recent quarter. The bank’s legal expenses jumped by 54%, or more than $400 million, in the fourth quarter, partly due to a $305 million charge associated with the bank’s settlement over alleged foreclosure abuses.
Citigroup set aside another $900 million in reserves for possible future litigation. Chief Financial Officer John Gerspach was vague during a call with journalists, only saying that the litigation was related to Citigroup’s consumer unit.
During the quarter, Citigroup earned $2.2 billion, or 69 cents per share, excluding certain accounting charges. Analysts had expected net income of $2.9 billion, or 96 cents per share. Revenue came in at $18.7 billion, slightly below the $18.8 billion analysts had forecast.
“It will take some time to work through the challenges of the current environment,” said Citigroup’s CEO Michael Corbat in a statement.
So far, Citigroup is the first bank to miss analyst’s fourth quarter forecasts.
Corbat is expected to make broad cost cuts to reel in what’s often seen as Citigroup’s unwieldy operating structure and expense base. Just three months into the job, Corbat announced plans to lay off roughly 11,000 Citigroup employees. At the time, Citigroup said the changes would lower expenses by $1.1 billion per year by 2014 and cut revenue by about $300 million.
Citigroup did manage to show investors growth in the fourth quarter. Revenues increased in Citigroup’s three core business lines. Revenues across the bank rose 8%, with its investment banking and trading division posting a 47% jump. Both its consumer bank and transaction services units increased revenue, though more modestly, at 4% and 1% respectively.
Shares of Citigroup dropped nearly 3% Thursday. The bank’s stock is up more than 7% this year, following a jump of more than 60% in 2012.
Corbat was appointed CEO in mid-October, after Vikram Pandit ended his tumultuous five-year reign atop what’s been deemed the world’s financial supermarket.
Citigroup is one of five major banks to report earnings this week. Goldman Sachs, Bank of America and JPMorgan have already reported earnings. Morgan Stanley will release fourth quarter results on Friday.
