Vikram Pandit is poised to report Citigroup Inc.’s first annual profit since he took over as chief executive officer three years ago, relying on trading and consumer banking to counter a drop in underwriting and mergers.
Citigroup, which took a $45 billion taxpayer bailout in 2008, may report net income of about $2.19 billion for the fourth quarter, based on a Bloomberg survey of 11 analysts’ estimates. That would bring full-year earnings for the New York- based company to $11.5 billion, the most since 2006. Pandit’s bank lost $29.3 billion during his first two years in charge.
“It’s a sign that the pain that Vikram inherited and endured over recent years has finally turned a corner,” said Charles Peabody, an analyst with New York-based Portales Partners LLC who recommends investors buy Citigroup shares.
Pandit, who turns 54 today, is capping a year in which Citigroup’s stock surged 43 percent. That gain followed a 90 percent tumble from Dec. 11, 2007, when Pandit took over, through the end of 2009. Earnings rebounded as Citigroup, which reports results on Jan. 18, more than doubled fixed-income and equity-trading revenue in the fourth quarter to about $4.5 billion, according to a December estimate by David Trone, an analyst with New York-based JMP Securities LLC.
JPMorgan Chase & Co. may report a $4.24 billion profit for the fourth quarter today, while Bank of America Corp., which reports next week, could post $2.61 billion, according to the average of analysts’ estimates. Charlotte, North Carolina-based Bank of America and New York-based JPMorgan are the two biggest U.S. banks by assets, ahead of No. 3 Citigroup.
Most of the biggest banks benefited from gains in investment-banking and trading revenue during 2010, which probably climbed to the second-highest ever for the year, according to data compiled by Bloomberg.
Citigroup’s consumer-banking division also contributed to the fourth-quarter gains, with profit probably almost doubling to $1.1 billion on increased revenue from Latin America and North America, according to Oppenheimer & Co. analyst Chris Kotowski. The bank plans to almost triple its workforce in China to 12,000 people in the next three years, Asia Pacific co-chief executive Stephen Bird said in an Aug. 31 interview.
“While not fully sold on the benefits of globality, we do think it is totally reasonable and demonstrably true that Citi has good presence and share in some of the world’s best growth markets,” Kotowski wrote in a November note. “At a minimum, Citicorp should grow better than average just by virtue of its footprint.”
Pandit told analysts Oct. 18 that Citigroup should be “in a position to return capital” to shareholders in 2012, meaning the bank may reinstate the dividend it eliminated in February 2009 or buy back shares from investors. Separately, Pandit may also announce a reverse stock split, Barclays Plc analyst Jason Goldberg said in a Jan. 11 note.
The bank took a $45 billion taxpayer bailout in 2008 to avoid collapse during the financial crisis. The U.S. government sold the last of its stake during the fourth quarter. A special inspector for the U.S. Treasury Department said yesterday the rescue was “strikingly ad-hoc” and based on “gut instinct and fear of the unknown.”
Rising profits from consumer banking and Wall Street trading would come amid a slide in Citigroup’s investment- banking business, which includes managing sales of equities and bonds as well as advising on mergers and acquisitions.
Revenue from the three businesses for the year through September 2010 fell 20 percent to $2.66 billion. Trone said in a Jan. 10 report that investment-banking fees for the year may have dropped a “disconcerting” 18 percent.
The bank slipped to fifth place from second among underwriters of global corporate bonds in 2010, Bloomberg data show. Citigroup, the top underwriter between 2000 and 2007, managed $148.6 billion of companies’ bond offerings in the year, down from $243.6 billion in 2009. JPMorgan has held first place since 2008.
Citigroup also lost senior investment bankers in Europe during the year to competitors such as Bank of America and Barclays Plc as it fell to eighth place from second among advisers on M&A deals announced there last year. Pandit hired former Commerce Secretary Carlos Gutierrez and ex-White House Budget Director Peter Orszag as vice chairmen of the investment- banking unit in December.
The bank also managed the sale of $37.9 billion of equities in 2010, including its own stock, Bloomberg data show. This compares to $49.7 billion in 2009. Citigroup remained in fifth place among equity underwriters as Morgan Stanley replaced JPMorgan at the top.
Citigroup’s deal-making revenue tumbled as it advised on completed mergers and acquisitions worth $228.2 billion in 2010, compared with the previous year’s $474.9 billion. The bank slipped to seventh place from third among advisers, as Goldman Sachs Group Inc. swapped places with Morgan Stanley for the top spot, the data show.
“While one year’s results do not make a trend, we believe there is some risk that Citi’s slip is more than random statistical variance or short-term mix,” Trone wrote.
Citigroup’s trading and investment banking is run by John Havens, head of the bank’s Institutional Clients Group. Havens joined the company with Pandit in 2007.
“During 2010, we successfully repositioned our banking business with a more focused client platform and made a number of important new senior hires,” Danielle Romero-Apsilos, a Citigroup spokeswoman, said.
The bank’s local consumer-lending unit may have lost $1.7 billion in the fourth quarter of 2010 compared with a $2.4 billion loss in 2009, according to Kotowski. The business includes CitiFinancial, which Pandit renamed OneMain in November and is trying to sell.