Citigroup profit tumbles on rising spending and weak consumer banking

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By David Henry and Niket Nishant

(Reuters) – Citigroup Inc reported a 26% slump in fourth-quarter profit on Friday, reeling from weakness in its consumer banking arm and higher spending driven by costs related to the exit of its retail business in Asia.

The lender ditched the last of its consumer businesses outside the United States as part of a “strategy refresh” launched by chief executive Jane Fraser, who took the helm in March.

It has also spent more in recent quarters to fix problems identified by regulators in its control systems, leading investors to wonder how much money and how long the fixes will take.

In the fourth quarter, the bank’s operating expenses jumped 18% mainly due to costs related to the exit of retail banking activities in South Korea, a decision announced in October.

The bank said this week it would wind down its huge consumer bank in Mexico and earlier on Friday announced the sale of its retail branches in Indonesia, Malaysia, Thailand and Vietnam to the 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 salaries and bonuses.

“We’ve seen some pressure on what you have to pay to attract talent,” chief financial officer Mark Mason said in a post-earnings call.

Rising costs caused the bank’s profit to drop to $3.2 billion, or $1.46 per share, in the quarter ended Dec. 31, from $4.3 billion, or $1.92 per share, a year earlier.

Falling profits had sent the company’s shares down as much as 3.5%, but they pared some of the losses after chief financial officer Mason said the company planned to resume share buybacks.

Citi had suspended redemptions in the fourth quarter to build capital before the Korea exit fee and the impact of a new capital rule for derivatives risk.

Excluding the impact of divestments in Asia, the bank earned $1.99 per share. Analysts on average had expected earnings of $1.38 per share, according to data from Refinitiv IBES.

Its global personal banking revenue fell 6% as Citi-branded credit cardholders in North America paid off their card balances, denying it interest income.

“Spending rates have increased, which is good, but we need to see that materialize into average interest-earning balances, which means payment rates need to normalize,” Mason said.

Treasury and Trade Solutions revenue, generally considered Citigroup’s strongest corporate business, fell 1% due to low interest rates.

The bank’s overall net interest income (NII) was flat year-over-year at $10.82 billion as corporate borrowings remained flat. But the NII for the bank’s core lending activity outside the markets rose 0.6%.

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

A bright spot in the quarter was the bank’s investment banking business, which saw a 43% increase in revenue.

Total revenue increased 1% year over year to $17 billion.

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

(Reporting by Niket Nishant in Bengaluru and David Henry in New York; Editing by Aditya Soni)

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