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Citigroup Announces Disappointing Q4 Earnings

By Catherine McClelland
Thursday, February, 5 2015

Citigroup issued a press release this morning confirming fears that profits slumped more than expected in 2014. The bank reported an 86 percent drop in profit for the fourth quarter of 2014.

Although the bank also cited significant legal and restructuring costs as factors in the earnings slump, much of the loss was due to sluggish trading at the end of the year. Trading activity slowed in December as conservative investors backed off in the face of volatile bond and stock prices.

Analysts projected a $0.09 EPS (earning per stock), but the bank failed to meet expectations, posting just a $0.06 EPS for the fourth quarter. Overall stock prices are down 11.2 percent from last year. Early morning trades saw a drop in Citi stock value, and the trading price will likely fall further as investors worldwide react to the news.

The much-awaited news came less than two weeks after the bank’s annual CCAR stress test reports were due on Jan. 5, 2015. Although the Fed will not release results until March, today’s report already has many worried that slipping profits will spell more regulatory woes for the bank.

Citigroup CEO Michael Corbat kept his comments positive, emphasizing increased market share, growth in its loan book, and other successes. “Although we made some difficult decisions over the course of the year, I believe they allowed us to put our franchise in a position to have a successful 2015,” he said.

Because Citigroup failed the qualitative aspects of the 2014 CCAR stress test, it was under extra pressure from both the Fed and its shareholders to outperform expectations this year. Last year’s failure meant that it could neither increase dividends on common stock nor return capital to its shareholders. A second failure will make it difficult to maintain stock prices.

Citigroup is the third largest U.S. bank (following JP Morgan Chase and Bank of America). Many banks have faced stiff fines from the Fed—including heavy penalties that topped $20 billion for Chase last year—as the top banks wrestle with regulations imposed in the wake of the 2008 financial crisis.

The Fed’s analysis of Citi’s CCAR report in the coming months will be telling for the bank’s regulatory future.