Citigroup (C) is scheduled to report their fourth quarter 2009 results before the market opens on Tuesday, January 19, 2010. In the last four quarters, the bank's performance hasn't been consistent. In the last four quarters ending September 2009, the group reported earnings losses but for the second quarter. Moreover, the reported earnings were wide-off the market's consensus reflecting the difficulty in estimating the cashflows of the group.
Analysts' estimates for the fourth quarter range from a low of -$0.37 to a high of -$0.25, compared to a consensus estimate of -$0.325. According to Thomson Financial, for the fiscal quarter ending December 2009, the consensus EPS forecast has decreased over the past week from -$0.323 to -$0.325 (-0.62%) and decreased over the past month from -$0.059 to -$0.325 (-450.85%). Of the 13 analysts making quarterly forecasts, none raised and 16 lowered their forecast.
Downward revision in the estimates is attributable to a substantial decline in fixed income, currency and commodities trading in the fourth quarter of 2009.
In the last two years, Citigroup's fourth quarter revenue was well below the runrate in the other quarters. I don't see any reason to expect a trend reversal. In addition to the usual revenue figure, the group has been reporting managed revenue as well.
Citigroup's revenue in third quarter was $20.4 Billion while managed revenue was $23.1 Billion. Managed metrics are non-GAAP measures. Excluding a $1.4 billion gain from the impact of the exchange offers and the $11.1 billion Smith Barney gain on sale, managed revenues were stable versus the prior quarter. Completion of exchange offers resulted in an additional $64 billion of Tier 1 Common and $60 billion of Tangible Common Equity. As a result, Tangible Common Equity and Tier 1 Common ratios improved during the third quarter to 10.3% and 9.1%, respectively. Tier 1 Capital remained stable at 12.7%. Tangible book value per share was $4.47.
Looking more closely at Citi's individual businesses, fixed income market fourth quarter revenues are expected to be sequentially down close to 18.5%. The group's Rates and Currencies business is expected to show continued strength despite normalizing market conditions and its impact on trading opportunities. Transaction Services revenues are expected to be sequentially up by 3%. Citi Holdings is expected to sustain the good performance shown in the previous quarter.
Coming to expenses in the fourth quarter - higher compensation costs, primarily in Securities and Banking are likely to contribute to increasing expenses trend. Credit costs are likely to show a sequential lower trend. The overall loan loss reserve could stand at 5.9% of total loans, up from 5.85% in the third quarter.
The future for Citigroup looks slightly brighter now that they have completed their TARP repayment and the economy appears headed for real recovery. While the government still holds 34% of Citi's stock, they are expected to exit their stake over the next 12 months. In 2009, Citigroup's shares fell over 50% and underperformed the 19% gain in the Dow Jones industrial average. However, Citi's shares staged a massive recovery from their low of $.97 in early March and reached over $5 in August. I continue to expect the stock to hover around $5 for the next two quarters.
