Fourth-quarter net income fell to $350 million, or 6 cents a share, from $2.46 billion, or 77 cents, a year earlier, Citigroup said today in a statement. That's less than the 9-cent average estimate of 20 analysts surveyed by Bloomberg. Declining fixed-income business cut markets revenue 14 percent, worse than the 5 percent drop Chief Executive Officer Michael Corbat predicted a month ago.
Profit slid after markets broke from a period of muted volatility that spanned much of last year and as the dollar strengthened, shrinking earnings from overseas. While dealers typically like when prices swing because it spurs trading, they prefer "sustained, reasonable levels" that follow a trend, Corbat said Dec. 9. Bank of America Corp. today reported an 11 percent profit drop as fixed-income trading fell.
"We're all debating on this fixed-income revenue issue: Is this a secular decline or more a cyclical decline?" Gerard Cassidy, an analyst at RBC Capital Markets, said yesterday in an interview on Bloomberg Radio. "I think we're in for some just tough numbers in fixed-income trading on a secular basis as we go forward."
Fixed Income
Revenue from fixed-income markets fell 16 percent from a year earlier to $1.99 billion, Citigroup said. JPMorgan Chase & Co. (JPM) reported a 14 percent drop in that business, excluding the sale of a commodities unit, to the lowest level since the financial crisis, on Wednesday.
Trading in equities at Citigroup generated $471 million in revenue, a 2.7 percent decline from a year earlier. That compares with JPMorgan's 25 percent jump to $1.1 billion.
For the full year, Citigroup's profit tumbled 47 percent to $7.31 billion, which "fell short of our expectations," Corbat said in the statement.
Citigroup fell 0.8 percent to $48.64 at 8:38 a.m. in New York trading, after declining 9.4 percent this year through yesterday.
In the weeks after Corbat forecast a 5 percent drop in trading revenue, the Standard & Poor's 500 Index fell to its first monthly loss since September. Crude oil prices also plunged in the quarter amid a global supply glut, dragging commodities to a fourth straight annual drop.
Smaller Bonuses
Corbat has expanded some trading businesses while rivals retrenched in response to periods of low volatility, a shift to electronic platforms and new rules that limit bond inventories and risk-taking. The bank ended up cutting the bonus pool for traders and salespeople after their division's lackluster performance in the final weeks of 2014, a person briefed on the matter said last week.
Within fixed-income, Carey Lathrop is global head of credit, and Jeffrey Perlowitz and Mark Tsesarsky are co-heads for securitized products. Andy Morton manages interest rates and Nadir Mahmud runs the currency business. Howard Marsh is head of municipal bonds. Stu Staley oversees commodities and Derek Bandeen heads equities. All report to Paco Ybarra.
Revenue excluding accounting charges for the institutional clients group — which includes trading as well as corporate and investment banking and the private bank — was little changed at $7.19 billion. The unit is run by Citigroup co-President Jamie Forese. Global consumer banking, led by co-President Manuel Medina-Mora, posted revenue of $9.44 billion that also was little changed.
