Citigroup Inc. (NYSE: C) reported a surprise drop in quarterly revenue on Monday, as extreme volatility in financial markets toward the end of the year hurt its fixed-income trading business, as per Reuters.
Revenue fell by 21% in the fourth quarter, with Citigroup citing market corrections as well as widening credit spreads in December. Overall revenue fell 2% to USD 17.1 Billion, below Wall Street expectation of USD 17.6 Billion, according to IBES data from Refinitiv. Shares of Citigroup fell nearly 1.6% to USD 55.80 in early trading hours after it reported results.
Stock markets fluctuated greatly in December and yield spreads also widened significantly in the fourth quarter as investors globally sharply retreated from risky investments, as stated by Reuters.
The drop in revenue hurt Citigroup’s effort to hit an efficiency target set by Citigroup’s Chief Executive Officer Michael Corbat, though it exceeded his goals for returns on tangible common equity. (ROTCE) The bank reported an efficiency target of 57.4% for 2018, slightly lower than Corbat’s 57.3% goal. Its ROTCE of 10.9% last year was above the 10.5% target.
Investors are urging Citigroup to prove it can grow revenue and profits, rather than returning capital through share buybacks. Citigroup shares are trading at a lower valuation than its rival U.S. banks, which has concerned investors.
Overall, Citigroup topped Wall Street expectations for earnings per share, which was primarily due to cost cuts. Quarterly profits rose to USD 1.61 per share, higher than analysts prediction of USD 1.55. Citigroup’s costs fell 4%, with the bulk coming from a unit that is still shedding assets left over from the 2007-2009 financial crisis, according to Reuters.
“Even though Citigroup returned more than 100 percent of its annual earnings through dividends and stock buybacks, the stock is still trading below tangible book value,” Oppenheimer analyst Chris Kotowski noted in a report after Citi’s earnings release.
Citigroup is the first major U.S. bank to report its fourth-quarter results. JPMorgan Chase & CO (NYSE: JPM), Bank of America Corp (NYSE: BAC), and Goldman Sachs (NYSE: GS) will report later this week.