Citigroup had a dreadful last quarter of 2014 as profits fell by 86% due to legal costs of $3.5 billion. The latest fines and litigation expenses were in relation to currency rigging and LIBOR manipulation. The legal bill and restructuring costs meant that annual profits fell by 46%.
The CEO Michael Corbat did acknowledge the size and cost of the legal bill, but still believes that the firm is in a good position to start 2015. He believes that large legal costs should not taint the first-quarter figures.
Citigroup was also hit by the tighter regulation and low market volatility, and this is why revenue from fixed income, currencies, and commodities (FICC) dropped by 16% on the year. Although other US banks experienced much larger drops in dealing earnings, Citigroup’s decline was larger than analysts had expected.
Last month the Federal Reserve gave Citigroup the green light to increase its dividend from 1 cent to 5 cents, and the share buyback scheme was increased to $7.8 billion from $1.2 billion. This sent a clear message to the market that Citigroup’s capital position is improving, but the bank is not out of the woods yet. Mr Corbat stated he would step down if the firm failed the stress test which is due later this year.
When Citigroup reveals its first-quarter figures, the consensus is for revenue of $19.8 billion and earnings per share (EPS) of $1.39. The fourth-quarter figures were mixed, and the revenue came in at $17.8 billion and EPS was $1.16, and the market was anticipating $18.61 billion and $1.07 respectively. The bank will report its full-year figures in January 2016, and the market is expecting revenue of $78 billion and EPS of $5.36. These estimates equate to a minimal increase in revenue and 16% rise in EPS.
Investment banks are very bullish on Citigroup, and out of the 36 ratings, 26 are buys, seven are holds, and three are sells. The average price target is $61.42 which is 16% above the current price. Equity analysts hold a moderately bullish outlook for Morgan Stanley, and out of the 35 ratings, 13 are buys, 21 are holds, and one is a sell. The average target price is $39.50 which is 7% above the current price.
The number of short positions being taken out on Citigroup has declined by 2.9% since the fourth-quarter numbers were announced in January, and the short interest on the stock is at its lowest level in 12 months.
The share price has been gaining momentum since the fourth-quarter results in January, and any moves lower are likely to find support at the 200-day moving average of $51.44. The resistance at $54 is the initial target, and then traders will look to $56. If the 200-day MA is punctured then $50 will be in sight, and a move through that level will bring the $47 area into play.
Citigroup is available for extended hours trading.