NEW YORK -- Citigroup Inc. said yesterday that its fourth-quarter profit from continuing operations fell 3 percent after a surge in credit-card defaults and a rise in costs to reward loyal customers.
Profit fell to $4.97 billion, from $5.15 billion in the fourth quarter last year, Citigroup said. Per-share earnings were unchanged at 98 cents a share, which fell short of analysts' estimates for the third straight quarter.
Analysts had expected Citigroup to have profit from continuing operations of $1 a share.
The fourth-largest company by market value was hurt by the October surge in U.S. bankruptcy filings just before a stricter federal law on bankruptcies took effect. Citigroup said the legislation that took effect Oct. 17 reduced earnings by $252 million.
The company also was hurt by a rise in short-term interest rates. Earnings at Citigroup's consumer bank plunged 23 percent as profit margins on loans shrank and customers who filed for protection from creditors defaulted on credit-card bills.
Citigroup said net income rose 30 percent to $6.93 billion after the sale of its mutual fund business to Legg Mason Inc. produced a $2.1 billion gain. Revenue rose 3 percent to $20.8 billion.
The Legg Mason deal included Citigroup's acquisition of the Baltimore firm's brokerage unit, which was absorbed into Smith Barney. Citi's consumer finance business, CitiFinancial, is based in Baltimore and it operates a credit-card processing center in Hagerstown.
After the earnings report, shares of Citigroup, the largest U.S. bank, had their biggest decline since September 2002. They dropped $2.25, or 4.6 percent, to $45.69 on the New York Stock Exchange. The stock has dropped 2.8 percent since Charles O. Prince III succeeded Chairman Sanford I. Weill as chief executive in October 2003.
Profit at the consumer bank, which includes credit cards, retail branches and loans to individuals, fell to $2.43 billion. Expenses to change the accounting for its customer-loyalty program cut an additional $345 million from profit. Prince is trying to draw customers to Citigroup branches with rewards of merchandise and vacations.
Rising short-term interest rates, coupled with a drop in long-term borrowing costs, reduced the spread between the rates that banks charge borrowers and the ones they pay on deposits. While Citigroup's U.S. branch loans rose 7 percent, net interest revenue was little changed.
Citigroup's corporate and investment bank posted a 21 percent increase in profit to $2.05 billion as revenue rose 14 percent to $6.24 billion. In equity trading, Wall Street's fastest-growing business, revenue rose 39 percent to $767 million. Advisory fees rose 25 percent to $359 million as more companies sought the bank's counsel on mergers. Profit in the wealth-management business, which includes the company's private bank and Smith Barney brokerage, more than doubled to $297 million.
Citigroup said Thursday that it awarded Prince $9.6 million in stock as part of his compensation for 2005, an increase from $7.81 million in 2004.
