Citing burdensome legal costs from its continuing mortgage woes and a challenging operating environment, Citigroup (NYSE:C) became the first bank to miss analysts’ estimates for the fourth quarter.

The bank reported fourth-quarter profit of $1.2 billion, or 38 cents per share, and earnings of $2.2 billion, or 69 cents per share. Both figures fell significantly below quarterly profit and earnings forecasts; analysts polled by Thomson Reuters had predicted net income of $2.9 billion, or 96 cents per share. However, results were significantly higher than the profit of $956 million, or 31 cents a share, posted this quarter last year.

“Our bottom line earnings reflect an environment that remains challenging,” said Chief Executive Officer Michael Corbat in his first earnings announcement since taking over the position in October. “It will take some time to work through the challenges of the current environment but realizing our core earnings potential, as well as improving our returns on assets and tangible equity, are critical goals going forward.”

After Corbat replaced ousted Vikram Pandit as chief executive, he pledged to overhaul the bank by focusing on its core business and dropping out of less profitable sectors. But so far, his efforts have hurt Citigroup’s bottom line for the short term; operating expenses rose 5 percent to $13.8 billion over the three-month period. The bank’s ongoing legal problems also added $1.3 billion to expenses. Like JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC), Citigroup has been forced to settle claims regarding its mismanaged foreclosure proceedings. Along with nine other banks, Citigroup agreed to an $8.5 billion settlement with the Federal Reserve and the Comptroller of the Currency earlier this month, with costs amounting to $305 million for the bank.

In order to appease shareholders, Citigroup has been divesting unprofitable businesses and reducing costs. As part of a large contraction, the bank announced in December that it would cut 11,000 jobs.

While many of the bank’s important financials were disappointing, Citigroup made gains in some of its businesses. Revenue from international operations rose 4 percent to $4.9 billion in the fourth quarter and revenue in North America rose 3 percent to $4.3 billion. In addition, the bank’s securities and banking division reported net income of $629 million, compared to a loss of $158 million in the year ago quarter. `

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