Citigroup disclosed major charges and reserve builds on Wednesday that will significantly impact its fourth quarter 2023 earnings results, scheduled to be released on Friday. The charges relate to restructuring efforts, risks from exposure to Argentina and Russia, and other one-time items.
$780 Million Restructuring Charges
The bank said it will take $630 million in restructuring charges to lay off workers and exit some businesses and another $150 million charge for software and real estate writedowns.
Citigroup has been looking to streamline operations after facing pressure from regulators to fix risk and operational controls. The latest restructuring actions are part of CEO Jane Fraser’s ongoing revamp initiative to boost profits by exiting non-core businesses across global consumer banking in 13 markets.
$1.3 Billion Reserve Build for Argentina and Russia
Citigroup also anticipates setting aside $1.3 billion “related to risks associated with exposures in Argentina and Russia,” where economic and political turmoil remain high. Both countries face high inflation, currency crashes, debt default worries and international sanctions.
The reserve build indicates Citigroup sees heightened risk that borrowers in both countries may not repay debts. Banks set aside reserves to cover potential future losses.
Total Pre-Tax Impact Over $3.8 Billion
All together, Citigroup said the charges and reserve build would reduce fourth quarter pre-tax earnings by about $3.8 billion.
“While impacts from geopolitical and macroeconomic uncertainties remain volatile, we are proactively managing risks and exposures,” CEO Jane Fraser said in a statement.
| Charge | Amount |
|---|---|
| Restructuring charges | $780 million |
| Reserve build for Argentina & Russia risks | $1.3 billion |
| Total pre-tax impact | $3.8 billion |
Significant Dent to Profits Expected
The charges are expected to put a huge dent in Citigroup’s profits for the quarter. Analysts had forecast adjusted earnings per share of $1.67 prior to Citigroup’s announcement, according to Refinitiv.
The $3.8 billion pre-tax hit could wipe out profits entirely or potentially put Citigroup into a loss for the quarter. Every $1 billion after tax reduces earnings by about 45 cents per share, according to Credit Suisse analyst Susan Roth Katzke.
Citigroup profits had already dropped 48% in the third quarter of 2023 amid the challenging economic environment.
Stock Drops on News
Citigroup shares fell 2.2% after the bank revealed the charges. Investors are bracing for ugly results when the firm reports fourth quarter numbers on Friday before markets open.
The stock declines add to double digit drops last year that significantly lagged the broader market. Citigroup shed 29% in 2022 while the S&P 500 fell 17%.
Year-to-date, shares are down about 4% amid concerns over the charges slashing profits as well as Citigroup’s exposure to risks in emerging markets like Argentina and Russia.
What’s Next For Citigroup
The hefty charges Citigroup is taking could help position the bank better for the long run. The restructuring efforts should improve efficiency, while the reserve build ups deposit money to cover potential future loan losses.
“The moves will give Citi greater flexibility to serve our clients and customers,” CEO Fraser said.
Many analysts covering Citigroup still see upside ahead for the stock if the economy avoids recession. The current Bloomberg analyst consensus rating on Citigroup shares remains a buy with an average price target of $75, about 30% above current levels.
But near-term turbulence still lies ahead with Q4 results likely depressing. Citigroup may provide more details on expectations for performance in 2024 during earnings calls with analysts this week. Much remains uncertain as volatile global markets, inflation, rate hikes and geopolitics continue impacting results.
This is a developing story. Check back for updates on Citigroup’s fourth quarter earnings and performance as results are reported Friday morning.
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