Citigroup (C) Stock Down on Q4 Earnings Shortfall and Job Cuts

Shares of Citigroup Inc. (C: Charts, News) fell on Tuesday after the company reported lower than expected earnings for the fourth quarter of 2011. Citigroup stock lost -2.52 or -8.21% per share to close at $28.22 in active trading of 56,749,800 shares on Tuesday. The main reason for the shortfall in revenues -- the company's capital markets division -- has weighed heavily on other big names such as J.P.

Morgan Chase (JPM: Charts, News), who also reported its largest shortfall in earnings since the beginning of the 2008 financial crisis, last Friday.

` Citigroup executives cited the European financial crisis as the main reason for the weaker fourth quarter earnings, with clients becoming less likely to invest in the current economic environment, in addition to a weaker than expected month of December. In addition to the loss of customer business, Citigroup remains heavily exposed to European debt, which is currently running at $7.8 billion.

Nevertheless, the company's Chief Financial Officer, John Gerspach stated that "We are not walking away from the Eurozone" even if "Europe remains the largest overhang on the market at this time." Despite the lower than expected quarterly earnings, Citigroup's Chief Executive Vikram Pandit stated that, "Overall, we made solid progress in 2011," he added that, "However, the weak global economy negatively affected market activity, and many of our clients reduced their risk, especially in the fourth quarter."

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Citigroup reported earnings of 38 cents per share, or $1.16 billion in the fourth quarter, significantly lower than the 50 cents per share Wall Street expected. Revenue was also lower, dropping by seven percent to $17.2 billion. Year ago figures had the company earning $1.3 billion or 43 cents per share. Despite the lower fourth quarter earnings, Citigroup ended the year reporting net income of $11.3 billion for 2011, six percent higher than its results for 2010.

Net income for the quarter declined 11 percent to $1.17 billion with trading revenue sliding 37 percent and investment banking, a whopping 45 percent. Proprietary trading revenue from stocks and bonds declined by almost 10 percent from the same quarter last year, while expenses rose four percent to $12.9 billion as the company invested in expanding their business in emerging markets.

The company's stock has recently rallied along with other major banks as prospects for the U.S. economy seem to be improving, with Citigroup stock rising from $23.63 in late November, to a recent high of $31.60 made on January 12th. The stock was trading over $51 per share in mid-January of last year.

In addition to the earnings report, Citigroup also announced on Tuesday that it would be cutting 5,000 jobs. The move prompted senior debt traders Rohit Bansal and Chris Yanney to leave the firm after the announcement. The new job cuts come after the firm announced plans to eliminate 4,500 jobs last month. Job elimination also weighed on fourth quarter earnings, with the firm taking a $400 million restructuring charge as a result.

Despite the lower earnings overall, Citigroup's loan losses declined, while total outstanding loans increased, giving strong indications that the U.S. economy has begun to turn around. Citigroup has repaid the $45 billion bailout money from Washington it took at the height of the financial crisis, and appears to be gaining solidity under CEO's Vikram Pandit's direction.

If economic expansion continues, Citigroup stock will most likely be a chief beneficiary, with a book value of $60 per share and trading at a little over eight times earnings of $3.71 a year, some analysts consider Citigroup stock somewhat undervalued. Nevertheless, the firm's exposure to European debt could severely hamper the firm's recovery if the European crisis continues unresolved.

Other News About C
Citi, JPMorgan Report Lowest Revenue Since '08
Compares Citi and J.P. Morgan fourth quarter earnings declines.
Citigroup Traders Bansal, Yanney Exit as Pandit Cuts Staff
Top debt traders leave as Citi cuts jobs. Other Stocks in the News
Wells Fargo Posts Record Profit, Citing Mortgage Lending
San Francisco based bank reports record profit.
Founder Severs Ties to Yahoo
Jerry Yang leaves Yahoo.

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Published on Jan 18, 2012
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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