Citigroup beats Wall Street estimates, but gets battered by tax reforms

Citigroup posted profits in excess of Wall Street expectations on Tuesday, as solid growth in its consumer banking business, specifically in the Asian and South American markets, helped to offset an overall drop in trading revenues.

However, the US-lender booked a one-time charge of $22bn relating to the Trump administration's recent tax reforms, dragging the firm to a loss of $18.3bn for the three months to 31 December, versus the $3.6bn of net income it reported at the same time one year prior.

Although Washington's new tax legislation was expected to result in long-term gains for American global banks, several Wall Street lenders warned that they were likely to take a significant hit in the fourth quarter after JPMorgan, the biggest bank in the US, booked an extraordinary charge of $2.4bn from the hit to overseas income on Friday.

Furthermore, analysts predicted that Citigroup, which said it was expecting to benefit in future quarters from the new law as its tax rate falls from 30% to around 25%, would be unlikely to reap quite as much of a benefit as the other major US banks given the firm earned almost 50% of its profits from overseas.

Removing the tax charge, net income rose 4% to $3.17bn with earnings per share of $1.28 also topping analysts' expectations of $1.19 per share.

Revenue as a whole gained 1.4% to $17.26bn, slightly ahead of Wall Street forecasts for $17.22bn.

Fixed income markets revenue retreated 18% over the quarter, and equity markets revenue dropped 23% due to derivatives losses of approximately $130m from a single client.

Citi's Global Consumer Banking business revenue, which covers all retail banking and credit cards, gained 5.6% on the same period twelve months earlier, accounting for nearly half of the bank's total revenue, predominantly driven by Asian and Latin American growth which each returned an 11% growth in revenue.

Citi's chief executive, Michael Corbat said, "While our fourth quarter results reflected the impact of a significant non-cash charge due to tax reform, the impact on our regulatory capital was much less significant. Tax reform does not change our capital return goals as we remain committed to returning at least $60 billion of capital in the current and next two CCAR cycles, subject to regulatory approval. Tax reform not only leads to higher net income and increased returns but also serves to strengthen our capital generation capabilities going forward."

"On an operating basis for the full year, we earned $15.8 billion in net income, which was nearly $1 billion more than 2016. And our earnings per share were $5.33, up 13% from 2016. We also made solid progress towards the targets we introduced during Investor Day in July. Revenue growth and strong expense management brought us to a full year efficiency Ratio of 57.7%, an improvement of over 150 basis points from 2016. And our Return on Tangible Common Equity including and excluding DTA increased to 8.1% and 9.6%, respectively," Corbat concluded.

As of 1620 GMT, shares had nudged ahead 0.56% to $77.27 each.