Citigroup (C) shares flat following "kitchen-sink" Q4 report
AInvestFriday, Jan 12, 2024 10:44 am ET
2min read
C --

Citigroup Inc. (C), a leading global financial institution, announced its fourth-quarter earnings report, surpassing market expectations. While the quarter had some disappointing aspects, Citigroup demonstrated significant progress in its restructuring efforts and execution of strategic initiatives. 

Restructuring and Strategy Execution: 

Citigroup has made substantial strides in restructuring its operations, streamlining its business lines, and aligning the organization with its long-term strategy. By reorganizing around five core and interconnected business segments, Citigroup aims to enhance operational efficiency, improve accountability, and foster transparency in performance measurement. 

Financial Performance: 

Citigroup reported a decrease in Q4 2023 revenues by 3% year-over-year to $17.4 billion, partly due to divestitures and the Argentina devaluation, although there was a 2% increase when excluding these factors, driven by Services, USPB, and Investment Banking. 

Citigroup reported significant growth in its services revenues, which increased by 16% over the year. This growth was primarily driven by gains in market share and client acquisitions. Despite a disappointing performance in fixed income results during Q4 due to a slowdown in December, the company achieved growth in equities, particularly in Derivatives and Prime balances.

Citigroup's investment banking division faced challenges due to a global slowdown; however, it experienced an upturn in the fourth quarter, with revenue increasing by 27%. This improvement, along with a rebound in Asian markets, indicates potential growth opportunities for the company. Citigroup's ability to adapt to market conditions and capitalize on emerging opportunities will be vital in driving its investment banking revenue in the future.

Operating expenses rose by 23% to $16.0 billion, including a special FDIC assessment; without this and divestiture-related costs, the increase was 10%. The cost of credit was up at $3.5 billion compared to $1.8 billion in the previous year, attributed to cards and reserve builds. Citigroup's total allowance for credit losses was $21.8 billion at the end of Q4, compared to $19.4 billion at the end of the prior year.

Citigroup experienced a net loss of $1.8 billion for the quarter, contrasting with a net income of $2.5 billion a year earlier, due to higher expenses, credit costs, and lower revenues.

The company achieved its full-year expense guidance and significantly improved its CET1 capital ratio to 13.3%. 

Citigroup's Tangible Book Value per share rose by 6% to $86.19, reflecting the company's commitment to creating long-term shareholder value. 

Wealth Management: 

While overall revenues in Citigroup's wealth management division decreased for the year, the fourth quarter showed signs of improvement. This suggests that the division is regaining momentum and positioning itself for growth. As the company focuses on strengthening its wealth management offerings and expanding its client base, this business segment has the potential to contribute significantly to future revenues. 

US Personal Banking (USPB): 

Citigroup's US Personal Banking division achieved outstanding performance, with double-digit growth in the quarter and a remarkable 14% increase for the year. This success attests to the division's ability to attract new customers and effectively serve its existing clientele. As Citigroup continues to prioritize its USPB operations and capitalize on the robust demand in the personal banking sector, this division is poised for continued growth. 

Outlook:

The company issued upside guidance for FY24, projecting revenues of $80-81 billion, compared to the FactSet Consensus estimate of $79.46 billion. This upside guidance reflects Citigroup's confidence in its ability to adapt to the evolving capital and macro environments to reach its medium-term targets.

The company expects a net reduction in reported headcount of 20,000 over the medium term. Citigroup sees FY24 expenses of $53.5-53.8 billion, with mid-single-digit growth in card portfolios and a 4-5% revenue CAGR in the medium term. The company remains committed to achieving an 11-12% return on tangible common equity (RoTCE) in the medium term.

Conclusion: 

Despite the challenging global economic environment, Citigroup made significant progress in restructuring around five core business lines: global consumer banking, global business banking, treasury and trade solutions, institutional clients group, and emergent businesses. The company's strategy is to simplify and align its organization with these business lines, enhancing transparency into performance.

The results are disappointing on the surface, but many view this as a "kitchen-sink" report for C. This means it front loaded a lot of expenses as it looks to stream line its operations. This is why we saw shares rally despite the poor earnings. 

With strong financial performance, a focus on client acquisitions, and a rebound in investment banking, Citigroup is well-positioned to deliver value to its stakeholders and achieve its medium-term targets. Overall, Citigroup's Q4 earnings reflect the company's determination to adapt, evolve, and thrive in a dynamic financial landscape.

$C(C)


Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.