Citigroup kicked off calendar fourth-quarter earnings season on Monday by reporting stronger-than-expected earnings, but fixed-income trading suffered after a volatile fourth quarter.
Citigroup reported $1.61 in profit per share, besting Wall Street expectations of $1.55 per share. However, its fixed-income trading division took a 21 percent hit.
“A volatile fourth quarter impacted some of our market-sensitive businesses, particularly fixed income,” said CEO Michael Corbat.
Nonetheless, Citigroup Chief Financial Officer John Gerspach painted a positive picture of the economy at large.
“The real economy is doing well,” said Gerspach. “Then you’ve got what I’ll call the financial economy…I think there’s a good deal of concern around the world as to how do we exit this period of quantitative easing.”
“What remains to be seen is whether the financial economy has an impact on the real economy in 2019,” Gerspach added.
Shares of Citigroup jumped as much as 4 percent on Monday.
In addition to Citigroup, other large banks, such as JPMorgan Chase & Co. and Wells Fargo & Co. will report fourth-quarter earnings this week. Additionally, Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley will report later this week.
The financial sector ETF Financial Select Sector SPDR (NYSEArca: XLF) was up slightly at 0.65 percent.
Cost-Cutting Measures
In order to curb the weakness in its fixed-income trading, Citigroup cut costs by 4 percent, including a 6 percent reduction in compensation. Those cost-cutting measures combined with a lower-than-expected tax rate helped to bring forth the positive earnings.
U.S. equities appear to be rebounding from its December doldrums, but according to Gerspach, it’s too early to tell if the recent strength is sustainable.
“Volatility has somewhat moderated and both equity prices and yields have shown signs of stabilization,” Gerspach said. “But, again, it’s really early and market conditions — even though there have been improvements — they have yet to fully recover at this point.”
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