Citigroup profit drops on higher expenses, consumer banking weakness

Citigroup Inc reported a 26% drop in fourth-quarter profit on Friday, reeling from weakness at its consumer banking arm and a surge in expenses driven by costs stemming from the exit of its retail businesses in Asia.

The lender has been shedding the last of its consumer businesses outside of the United States as part of a "strategy refresh" started by Chief Executive Officer Jane Fraser, who took the helm in March.

It has also spent more in the past few quarters to fix issues regulators identified in its controls systems, leading to questions from investors on how much money and time the remedies will require.

In the fourth quarter, the bank's operating expenses surged 18% mainly due to costs tied to the exit of retail banking operations in South Korea, a move announced in October.

The bank said this week it would wind down its massive consumer bank in Mexico and earlier on Friday announced the sale of its retail arms in Indonesia, Malaysia, Thailand and Vietnam to Singapore-based lender United Overseas Bank.

Its costs have also risen due to a battle for talent on Wall Street that has prompted global banks to offer perks like higher pay and bonuses.

"We have seen some pressure in what one has to pay to attract talent," Chief Financial Officer Mark Mason said on a post-earnings call.

The higher costs pushed down bank's profit to $3.2 billion, or $1.46 per share, in the quarter ended 31 December, from $4.3 billion, or $1.92 per share, a year earlier.

The profit drop had sent the company's shares down as much as 3.5%, but they pared some of the losses after CFO Mason said that the company planned to resume share buybacks.

Citi had suspended buybacks in the fourth quarter to build capital ahead of charges for the Korea exit and the impact of a new rule on capital for derivatives risk.

Excluding the hit from Asia divestitures, the bank earned a profit of $1.99 per share. Analysts on average had expected a profit of $1.38 per share, according to Refinitiv IBES data.

Its global consumer banking revenue dropped 6% as holders of Citi-branded credit cards in North America paid down card balances, denying it interest income.

"Spending rates have picked up, which is good, but we have to see that materialize into average interest-earning balances which means payment rates have to normalize," Mason said.

Revenue from Treasury and Trade Solutions, generally considered Citigroup's strongest corporate business, was down 1% due to low interest rates.

The bank's overall net interest income (NII) was flat year-over-year at $10.82 billion as borrowing from corporations stayed flat. But NII from the bank's basic lending business outside of markets rose 0.6%.

Net interest margin, which measures the difference between what Citigroup pays for money and earns from loans and securities, declined to 1.98% from 2.06% a year earlier.

A bright spot during the quarter was the bank's investment banking business, which posted a 43% jump in revenue.

Total revenue increased 1% from a year earlier to $17 billion.

Wall Street peers JPMorgan Chase & Co and Wells Fargo & Co also reported results on Friday, with their profits comfortably beating consensus estimates.