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Citigroup pledges accelerated expense reduction; stock pops 4%

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Citigroup pledges accelerated expense reduction; stock pops 4%

While reporting year-end results, Citigroup Inc. management pledged to continue driving down expenses without sacrificing long-term investment initiatives. Investors appeared to like the message, driving the bank's stock higher.

The bank's 2018 fourth-quarter results, released Jan. 14, beat consensus analyst profit estimates as lower-than-expected expenses and a significant benefit from tax reform offset below-consensus revenues. Revenues were hampered by a 21% year-over-year decline in fixed income revenues, which management attributed to a tough trading environment.

"Volatility was just so much that people didn't know when to jump in and, therefore, everybody just stayed on the sidelines," CEO Michael Corbat said during the bank's earnings call.

Citi's stock price was up about 4% around midday while broader market indexes were down modestly.

Management touted the bank's efficiency ratio, which declined to 57.4% in 2018 compared to 58.3% in 2017. Executives said they continue to shoot for a low-50s efficiency ratio and that they expect net incremental savings of $500 million to $600 million this year followed by another $500 million to $600 million in 2020.

Some analysts on the call appeared to want a stronger commitment to expense reduction, expressing concerns that capital markets revenue could further deteriorate. But Corbat said the bank is committed to investments in digital solutions, especially since many of those investments enabled expense reductions. He also highlighted investments in Mexico and treasury services, which delivered 11% revenue growth. He said he is concerned that a cessation of certain investment initiatives could derail strong growth trajectories.

"I don't want to sacrifice that momentum that we've got going right now as we go into 2019. But if and when appropriate, we're going to pull the levers we need to pull," Corbat said.

Executives also said most of the expense reductions would come in consumer banking and that the cards business is already highly efficient.