Analyst Note| Eric Compton, CFA |
Narrow-moat Citigroup reported mixed fourth-quarter earnings, with EPS of $2.08 handily beating the Factset consensus estimate of $1.34 per share. This equated to a return on tangible common equity of 11.4%. As with several peers, the biggest swing factor, one we have highlighted in the past, was provisioning for credit losses. In the current quarter, Citigroup was able to release almost $1.5 billion in reserves compared with net charge-offs of just under $1.5 billion, resulting in provisioning of close to zero. Compared with credit costs of roughly $2.4 billion last quarter, this was a swing of roughly $0.93 in EPS, assuming a 20% tax rate. The possibility of reserve releases occurring had been talked about prior to the beginning of the fourth quarter, but it is nice to see it actually occurring as it signals that the banks are likely well reserved, which has been our thesis all along. Citigroup isn't the only bank seeing this trend, as JPMorgan and PNC reported positive reserve development as well today.