DBRS: Citigroup Struggles in 4Q13, but Annual Progress Is Pronounced

Summary:

• Disappointing 4Q13 adjusted QoQ 20% earnings and 1.5% revenue declines driven by increased legal and credit expense, as mortgage and FICC revenues weakened.
• Credit quality improvements lead to a $670 million reserve release mostly driven by Citi Holdings, as core credit normalizes.
• DBRS rates Citigroup Inc. Issuer & Senior debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) considers Citigroup Inc.’s (Citigroup or the Company) 4Q13 financial results as generally weaker compared to 3Q13. Of concern, each business segment’s income (continuing operations) was flat or down over the sequential and year-ago quarters. Consolidated 2013 Citigroup income (continuing operations), however, was 77% above 2012 on the strength of the Securities and Banking segment (which can be volatile) and improvements in Citi Holdings.

Positively, DBRS notes that the balance sheet continued to improve over the quarter and year, while Citigroup continued to reduce its risk profile. Specifically, Citicorp loans and deposits grew 2.5% and 2.0% QoQ and 7% and 8% YoY, respectively. Meanwhile, Citi Holding loans fell 3.1% QoQ and 20% YoY. Improvement in Holdings did slow in the quarter, as asset sales declined. Of note, net interest revenue rose 4% QoQ on higher volumes, but was flat YoY; as spread compression offset higher balances.

The Company’s credit continued to improve with Citi Holdings responsible for 81% of the 4Q13 reserve release. Nonaccrual loans fell 5% QoQ and 22% YoY, as North American and EMEA corporate loans primarily drove the improvement. Net credit losses actually rose 5% in the quarter primarily due to deterioration in North America and Latin American consumer credit, but were down 15% YoY. With some increased credit provisioning for loan growth and some indicators of credit normalization, DBRS believes that the Company’s reserve releases will likely trend down in 2014.

DBRS rates Citigroup Inc.’s Issuer & Senior debt at A (low) with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]