Citigroup Inc's fourth-quarter profit fell 11 percent and missed Wall Street estimates as the European debt crisis battered capital markets, hurting trading revenue and discouraging clients from doing deals.
Citi on Tuesday said the crisis and fears about its impact on other markets and the global economy led to a broad move by clients away from risk and a decline in market volumes around the world. Fixed income, equity markets and investment banking revenues all declined in the quarter.
The operating environment continues to be extraordinarily challenging in a number of businesses, none more so than securities and banking, Chief Financial Officer John Gerspach said on a conference call with analysts.
Citi's results show how investment banking units are dragging down profits for large Wall Street firms, and portend a tough fourth quarter for others such as Goldman Sachs Group Inc and Morgan Stanley, which report their results later this week.
In contrast, banks that focus more on business and consumer lending are doing better as the U.S. economy shows signs of recovery. Wells Fargo & Co beat analysts' earnings estimates on Tuesday, helped by improving credit quality and loan growth.
This trend was also reflected last week in the results of JPMorgan Chase & Co.
Money manager Jeffrey Sica, president of SICA Wealth Management, an independent wealth manager based in Morristown, New Jersey, which has bet against a basket of bank stocks, said Citi's earnings miss was horrendous in light of how much estimates had come down.
It's a very negative sign for banks in general, said Sica.
Citigroup shares fell 6 percent in midday trading on the New York Stock Exchange, lagging the KBW banks index, which was down 0.2 percent.
Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment, Citigroup Chief Executive Vikram Pandit said in a statement.
Pandit said the bank was cutting about 5,000 jobs and had taken a $400 million charge in the fourth quarter for severance payments. The bank, which has about 266,000 employees, said in December that it would cut 4,500 jobs and take that charge.
The world's major banks have announced more than 133,000 layoffs since mid-2011 as euro zone woes take their toll on trading income and investment banking.
Citi, the third-largest U.S. bank by assets, reported net income of $1.16 billion, or 38 cents per share, down from $1.31 billion, or 43 cents per share, a year earlier.
Analysts, on average, expected a profit of 49 cents a share, according to surveys by Thomson Reuters I/B/E/S. Estimates were high as 76 cents a share two weeks ago.
Citi's number to come in like this, still missing even though estimates were already cut, that's a cause of great concern, said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.
Citi said securities and banking revenue fell 29 percent from a year earlier, excluding the accounting impact of changes in the value of the bank's debt.
The profit drop came despite a lower provision for bad loans: down 41 percent to $2.9 billion.
Citi Holdings, which holds assets the bank plans to sell, posted a 30 percent decline in revenue to $2.8 billion as it continued to shed assets.
Citi Holdings had $269 billion in assets at the end of the fourth quarter, down about $90 billion from a year earlier.
Citigroup's operating expenses increased 4 percent to $12.9 billion in the fourth quarter. Pandit said the bank expects to reduce expenses by between $2.5 billion and $3 billion in 2012 from the $50.7 billion it posted for all of 2011.
(Reporting by David Henry in New York; Additional reporting by Lauren LaCapra; editing by John Wallace and Paritosh Bansal)