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Citigroup disappoints, despite $1.3-billion profit


Mark Lennihan

Citigroup Inc. marked another milestone in its recovery from a near-death experience during the financial crisis, even as that journey remains fraught with uncertainty.

The massive U.S. bank posted $1.3-billion (U.S.) in earnings for the last three months of 2010, it announced Tuesday. The results mean that the bank racked up a full year of profit for the first time since 2007.

Still, the quarterly figures disappointed analysts, who had forecast better results. Instead, Citigroup suffered somewhat from swelling costs and a weak showing by its trading division.

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The bank's executives painted the trading weakness as a short-lived phenomenon and pointed to underlying positive trends. For example, Citigroup is setting aside less money for bad loans as the U.S. economy improves and is moving quickly to dispose of troubled assets.

Citigroup's results come on the heels of a positive surprise last week from JPMorgan Chase & Co., whose quarterly earnings roundly surpassed expectations. Reports from other major banks, such as Bank of America Corp. and Goldman Sachs Group Inc. will arrive this week, revealing whether Citigroup's stumble was an anomaly.

Citigroup's efforts to regain its footing are an important test for the U.S. financial system as a whole. Just last week, a special government report on the Citigroup bailout concluded that the bank remains "an institution that is too big, too interconnected, and too essential to the global financial system to be allowed to fail."

The bank is clearly healing but far from fighting form. Vikram Pandit, its chief executive officer, has tried to streamline its sprawling operations by unloading businesses, cutting staff, and refocusing the bank on core activities like investment banking and retail services for upwardly mobile customers worldwide.

Mr. Pandit, who had the unenviable task of ascending to the bank's top job just as the crisis began to take hold, predicted in a note to staff that 2010 "will be remembered as the year Citi turned the corner."

It will also be remembered as the year that Citigroup ceased to be a ward of the U.S. government. Last month, the U.S. Treasury Department announced that it had sold the last of its common shares in the bank. The government still holds warrants for Citigroup stock, which it plans to auction off by the end of March.

For taxpayers, rescuing Citigroup proved to be a wise investment. The government has reaped profit of roughly $12-billion to date - partly because it struck a "particularly hard bargain" in exchange for assistance, in the words of last week's report on the bailout.

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Tuesday's results mean that Citigroup's total profit for 2010 came in at $10.6-billion, compared with losses of $1.6-billion in 2009 and $19-billion in crisis-hit 2008. For the fourth quarter, analysts had predicted that Citigroup would announce earnings equivalent to 8 cents a share; instead, the bank managed just half that amount.

"Altogether, a soft quarter, but [it's]mostly a trading thing," Glenn Schorr, an analyst at Nomura Securities, wrote in a note to clients. "Citi is still improving."

The belief in Citigroup's turnaround story has been reflected in the performance of its stock. Last year, its shares rose 43 per cent, outstripping the gains of other banks. On Tuesday, however, investors registered their dissatisfaction with the quarterly results by sending the stock down 6 per cent, though it's still up slightly so far this year.

As part of its post-crisis overhaul, Citigroup divided its businesses into two parts, separating viable long-term franchises from troubled assets due to be sold. The latter part, full of toxic investments and ancillary businesses, is known as Citi Holdings. Analysts note that the bank made faster-than-expected progress in disposing of such unwanted assets in the fourth quarter of 2010, during which time they declined to $359-billion.

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About the Author
U.S. Correspondent

Joanna Slater is an award-winning foreign correspondent for The Globe based in the United States, where her focus is business and economic news and New York City.Her career includes reporting assignments in the U.S., Europe and Asia. In 2015, she was posted in Berlin, Germany, where she covered Europe’s refugee crisis. More

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