Citigroup's Fourth-Quarter Earnings Signal M&A Surge and Restructuring Progress

Citigroup reported fourth-quarter 2025 earnings that exceeded Wall Street expectations, despite a significant one-time charge from its Russian divestiture. The bank's adjusted non-GAAP earnings per share (EPS) came in at $1.81, beating the estimated $1.71. The earnings reflect a broader shift in the financial sector, where global M&A activity is accelerating and reshaping competitive dynamics.

The most notable performance came from Citigroup's investment banking division, where M&A fees surged 84% year-over-year. This growth is part of a larger trend as global M&A activity hit $5.1 trillion in 2025, a 42% increase from the previous year. The surge reflects pent-up demand and AI-driven consolidations, creating favorable conditions for investment banks with strong advisory capabilities.

However, on a GAAP basis, the bank's net income fell to $2.47 billion, down 14% year-over-year. This decline was primarily attributed to a $1.2 billion pre-tax charge related to the final sale of its Russian retail unit to Renaissance Capital. This divestiture marks the culmination of a years-long effort to reduce Citigroup's international retail footprint and align with CEO Jane Fraser's strategic simplification goals.

Why Did This Happen?

Citigroup's success in the fourth quarter was driven by a combination of market conditions and strategic initiatives. The bank's investment banking division saw a 35% increase in overall revenue to $1.29 billion, fueled by a rebound in M&A activity. This momentum is being driven by stabilizing interest rates and a regulatory environment that has made it easier for corporations to finalize long-delayed deals.

The broader Banking unit also benefited from this trend, with revenue climbing 78% to $2.2 billion. Citigroup captured a larger share of the global advisory market than it has in nearly a decade. This success is a key component of Fraser's strategy, which has sought to reposition the bank as a more agile and focused competitor on the global stage.

How Did Markets React?

The market responded favorably to Citigroup's earnings report. Shares rose 1.5% in early trading, adding to a strong 2025 where the stock gained 65.8%. This performance outpaced the KBW Bank Index, signaling a significant re-rating of the company from a "deep value" play to a credible player in the elite tier of investment banking.

Investors are also reacting to Citigroup's broader simplification strategy, which includes a $20 billion share repurchase program. The program has been supported by the bank's improved capital position and operating leverage. Fraser's restructuring has also led to a reduction in management layers, from 13 to eight, which has contributed to the bank's agility and cost discipline.

What Are Analysts Watching Next?

Looking ahead, Citigroup's progress on several key initiatives will be closely watched. The bank is planning to eliminate 20,000 jobs by the end of 2026 as part of its efficiency drive. This includes 1,000 job cuts this week, according to Bloomberg. While the cuts are necessary for achieving $2.5 billion in annual savings, they also highlight the human cost of the bank's transformation.

Another key focus is the planned IPO of its Mexican retail banking unit, Banamex. Citigroup has already sold a 25% stake in the business to billionaire Fernando Chico Pardo and is preparing for a larger public offering in 2026. The success of the IPO will be critical for the bank's capital return strategy and its ability to compete with other global banks.

What Challenges Remain?

Despite its progress, Citigroup faces several challenges. One of the most pressing is the potential impact of proposed credit card interest rate caps by President Donald Trump. Citigroup's Chief Financial Officer Mark Mason warned that such a cap could lead to a significant slowdown in the economy, as it would restrict credit availability, particularly for subprime borrowers.

Citigroup's branded cards revenue rose 5% in the fourth quarter to $2.95 billion. However, under a 10% rate cap, analysts estimate that Citigroup's 2026 earnings per share could drop by about 10%. This would have a meaningful impact on the bank's bottom line and could delay its progress toward achieving its 10%–11% return on tangible common equity (ROTCE) target.

What Does This Mean for Investors?

For investors, Citigroup's fourth-quarter results suggest that the bank is finally turning the corner. The strong performance in M&A and the continued cost discipline are positive signs for the bank's long-term profitability. However, the ongoing risks—such as regulatory changes and the broader economic environment—mean that investors should remain cautious.

Citigroup is now in a stronger position to compete with traditional heavyweights like JPMorgan Chase and Goldman Sachs. Its success in capturing market share in M&A advisory could disrupt the "Big Three" dominance in the sector. If the bank can maintain its current trajectory and successfully execute its strategic initiatives, it may be able to overcome its historical reputation as a laggard and become a more consistent performer on Wall Street.