Citigroup shares fall after big earnings miss

US banking giant Citigroup Thursday reported earnings that missed expectations by a large margin as an executive said it was too soon to say the US housing market has truly recovered.

The bank's fourth-quarter profits came in at $1.2 billion, or 38 cents per share, far below average analyst forecasts of 96 cents per share.

Revenue came in at $18.2 billion, below expectations of $18.8 billion.

A year earlier, the bank earned 31 cents a share on $956 million in net profits.

Badly affected by the US housing bust, the bank said its fourth quarter numbers were hit by $485 million related to its credit valuation adjustment, which assesses the risk of counterparty default in the bank's derivatives trade.

Excluding the credit valuation assessment and $1 billion in previously announced repositioning charges, the bank said earnings came in at 69 cents a share.

It was the bank's first earnings report under chief executive Michael Corbat, who was named to lead the bank after his predecessor ViKram Pandit was forced to resign last October, one day after the third quarter earnings release.

Shares in Citigroup, which has lagged its rivals in rebounding from the financial crisis, were down 2.7 percent in morning trade to $41.32.

A Bank of America research note called Citi's earnings a "big miss."

Key questions include whether more cost-cutting initiatives are planned, the outlook for the bank's credit leverage as the US housing market improves, and if Citi has any plans for returning capital to shareholders, Bank of America said.

Citigroup also disclosed $1.3 billion in legal and related expenses, a much larger number than analysts had expected.

Chief financial officer John Gerspach said about $300 million of the litigation costs were related to a settlement announced between several banks and the US Comptroller of the Currency and Federal Reserve over foreclosure processes.

Gerspach implied there would be more settlements related to the housing bust.

"The entire industry is still looking at some additional settlements that are yet to appear," Gerspach said.

He also said that there were some positive indicators on the US housing market, but that it is too soon to say the market has recovered in a "sustainable" fashion.

A key question is how Washington policy makers deal with the debt ceiling and deep spending cuts that could take effect later this year.

After these Washington debates are settled, the market will know whether "some of those positive trends we're seeing in the housing market really are sustainable," Gerspach said.

Corbat alluded to an environment that "remains challenging", with banks working through the issues of "putting legacy issues behind us."

"It will take some time to work through the challenges of the current environment, but realizing our core earnings potential, as well as improving our returns on assets and tangible equity, are critical goals going forward," Corbat said in a statement.

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