Jan 20, 2007 3 min read

NEW YORK (AP) – Fourth-quarter profits at Citigroup Inc. came in ahead of Wall Street expectations, but analysts and investors appeared concerned that the nation’s largest bank still hasn’t gotten a handle on expenses. Citigroup already has said it will cut spending on projects this year, and Chief Executive Charles Prince said Friday in discussing the earnings report that further cuts could include consolidating administrative offices and merging some branch operations.

The latest report indicated that while revenue was up a solid 15 percent in the fourth quarter, expenses rose an even greater 23 percent.

“It doesn’t make you comfortable,” said Amit Kumar, a financial industry analyst with First American Funds in Minneapolis. “You have to wonder how long that can continue.”

Prince has named a new operations chief to review the bank’s expense base and recommend cuts by the end of the current quarter.

Prince declined to say what cuts he expected, but made it clear that the bank’s numerous “headquarters” buildings in New York, London and Hong Kong would not escape scrutiny. He also said he was monitoring experiments integrating Citi banking operations with Smith-Barney brokerages in Philadelphia and Boston to determine if they could be models for future branches.

Still, there was skepticism about cost-containment rhetoric.

Guy Moszkowski, an analyst with Merrill Lynch, said in a research note that the heavy spending in the fourth quarter was “continuation of a pattern investors have not particularly embraced.”

Noting that Prince is committed to cutting costs, he added: “We dare to believe ’07 will be different.”

Citigroup shares tumbled 20 cents to $54.19 in afternoon trading on the New York Stock Exchange.

The New York-based bank said it earned $5.13 billion, or $1.03 a share, in the October-December period, down 26 percent from $6.93 billion, or $1.37 a share, a year earlier. The year-earlier figure included a $2 billion gain on the sale of Citi’s asset management business to Legg Mason Inc.; excluding the gain, earnings in the fourth quarter of 2005 were 98 cents a share.

The latest quarter’s results included $415 million in charges stemming from previously announced cutbacks in the bank’s consumer-finance operations in Japan.

Quarterly revenue was a record $23.83 billion, up from $20.78 billion in the same period in 2005.

Analysts surveyed by Thomson Financial had projected earnings of $1.00 a share on revenue of $22.45 billion.

Like other banks, Citigroup faced some deterioration in credit quality. It raised provisions for losses to $2.3 billion in the fourth quarter from $2.1 billion in the third period.

Earlier in the week, JPMorgan Chase & Co., the nation’s third-largest bank, reported strong fourth-quarter earnings growth, as did No. 5 Wells Fargo & Co. of San Francisco, but both said there were signs of worsening credit quality among customers. The nation’s second-largest bank, Bank of America Corp. of Charlotte, N.C., reports results next week.

Prince told a conference call with analysts that Citigroup expected some weakening in credit quality this year, saying “We are planning on headwinds from credit in 2007, and we are managing our business in light of that.”

Prince called it “a good, solid quarter” but that there was a need for improvement in corporate investment banking because “many of our competitors reported even higher revenue growth.”

For the full year, profits totaled $21.54 billion, or $4.31 a share, down 12 percent from $24.6 billion, or $4.75 a share in 2005. Revenue was $89.6 billion for 2006, up from $83.6 billion in 2005.

The bank also announced that the board approved a 10 percent increase to the quarterly dividend on the company’s common stock to 54 cents per share from 49 cents per share, payable on Feb. 23 to stockholders of record Feb. 5.

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On the Net:

www.citigroup.com

AP-ES-01-19-07 1451EST