Citigroup

Diversified financial services provider Citigroup’s (C) fourth quarter earnings will depend on how its Citi Holdings segment performs during the fourth quarter. The segment handles investment banking and equity markets among other things. The company is scheduled to report its fourth quarter earnings number on January 17.

While worldwide stock offerings witnessed a 29 percent drop in 2011 from the year earlier, U.S. bond issuance recorded a 6.7 percent downside since companies postponed their plans of raising capital in view of uncertain and sluggish market conditions.

The capital markets sentiments were very badly mauled after Standard & Poor’s (S&P) reduced its sovereign rating on the largest economy in the world by a notch point in August last year triggering knee-jerk reactions across the world to postpone fund raising exercise. The deepening of credit crisis in the European Union further aggravated the market sentiments thereby dashing hopes of any improvement in the space in the fourth quarter too. This has resulted in major banks having already resorted to reducing their estimation for the fourth quarter.

Expectations

Wall Street analysts expect the New York-based company to report earnings of 40 cents a share on revenues of $18.57 billion for the fourth quarter. There is a likelihood of results getting impacted by the Euro Zone’s credit crisis and non-performing assets or bad loans provision could increase in the zone.

Earnings estimation was revised down to 48 cents a share from seven days ago projection of 76 cents a share and 81 cents a share 30 days back and from 90 cents a share 90 days ago.

Third Quarter Results

Citigroup reported net income of $3.77 billion of $1.23 per share, significantly higher than $2.17 billion or $0.72 per share in the year-ago quarter. This represents a year-over-year growth of 74 percent. The results were favorably impacted by credit valuation adjustment and adj! usted ea rnings were 84 cents a share, still higher than last year.

Total revenues slightly improved to $20.83 billion from $20.74 billion, including gain from credit valuation adjustment. But excluding adjustment, revenues slipped 8 percent to $18.9 billion due to weaker revenues from both Citicorp and Citi Holdings. Street analysts had estimated the company to earn 82 cents a share on revenues of $19.25 billion.

The significant aspect of the third quarter results was the fall in Investment banking and equity markets revenue in the after effect of credit rating downgrade. These segments suffered 32 percent and 22 percent quarter-over-quarter downside and 21 percent and 39 percent year-over-year drop thus indicating the weakness that the market was undergoing.

Earnings History

Citigroup had surpassed analysts’ projection of earnings for the last three quarters and it failed to meet analysts’ estimation during the fourth quarter of 2010. The company earned earnings of $1.23, $1.09, $1.00 and $0.40 a share for the third, second, first and previous year’s fourth quarter respectively.

Third quarter revenue witnessed a downside of 8.3 percent from the second quarter. There is a possibility of the company recording another quarter-over-quarter fall in revenues.

Versus Peers

Citigroup’s operating margin is weaker than industry average and other major rivals. Its operating margin for the trailing twelve-month period was 22.19 percent compared to industry average of 33.77 percent and rival JPMorgan’s (JPM) 38.96 percent and HSBC Holdings’ (HBC) 34.75 percent, but higher than Bank of America’s 4.53 percent. Profit margin for the same period was 17.36 percent versus JPMorgan’s 21.49 percent and HSBC’s 29.3 percent. Bank of America has a negative 2.37 percent.

iStock Punch

The results of Citigroup will be keenly watched for more than one reason. The leading banker could set the tone for what is in store for others. Analys! ts’ esti mate indicates that revenue for the fourth quarter will be lower than third quarter. The company’s results depend on how well it could manage to withstand the global uncertain economic conditions and Euro Zone’s credit crisis.

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