Citigroup Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; selected fourth-quarter figures are unaudited. Citi is a global financial services company operating through Global Consumer Banking (GCB), Institutional Clients Group (ICG), and Corporate/Other.
Financial performance and position
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue, net of interest expense | $74.3 billion | $72.9 billion | +2% |
| Net income attributable to Citigroup | $19.4 billion | $18.0 billion | +8% |
| Diluted EPS | $8.04 | $6.68 | +20% |
| Operating expenses | $42.0 billion | $41.8 billion | Essentially unchanged |
| Credit-loss and benefits provisions | $8.4 billion | $7.6 billion | +11% |
| Net interest revenue | $47.3 billion | $46.6 billion | +2% |
| Net interest margin, taxable-equivalent basis | 2.65% | 2.69% | Down 4 basis points |
- Returns and efficiency: Return on average assets was 0.98% versus 0.94%; return on average common equity was 10.3% versus 9.4%; return on tangible common equity was 12.1% versus 11.0%. The efficiency ratio improved to 56.5% from 57.4%.
- Cash flow: Operating cash flow from continuing operations was negative $12.8 billion, versus positive $37.0 billion in 2018. The filing attributes cash-flow movements in part to changes in trading assets and liabilities and brokerage balances. Investing cash flow was negative $23.4 billion; financing cash flow was positive $42.9 billion. Cash, due from banks and deposits with banks ended the year at $193.9 billion.
- Balance sheet and funding: Total assets were $1.95 trillion; deposits were $1.07 trillion, up 6%; long-term debt was $248.8 billion, up from $232.0 billion. End-of-period loans were $699.5 billion, up 2%.
- Capital and liquidity: Standardized CET1 was 11.8% versus 11.9%; supplementary leverage ratio was 6.2% versus 6.4%. Average HQLA was $437.6 billion and average LCR was 115%, above the 100% minimum. Citi returned $22.3 billion to common shareholders through repurchases and dividends.
Fourth quarter
Unaudited Q4 revenue was $18.4 billion, operating expenses $10.5 billion, provisions $2.2 billion, and net income $5.0 billion, or diluted EPS of $2.15. Q4 2018 net income was $4.3 billion and diluted EPS was $1.64.
Material changes and business results
- GCB revenue rose 2% to $33.0 billion and net income rose 7% to $5.7 billion. Card growth was partly offset by lower retail banking revenue; consumer net credit losses rose, reflecting card portfolio growth and seasoning.
- ICG revenue increased 3% to $39.3 billion and net income increased 3% to $12.9 billion. Fixed-income markets, treasury and trade solutions, investment banking and private banking were positive; equity markets revenue fell 15%. ICG results included a roughly $350 million Tradeweb investment gain and a $432 million loss on corporate loan hedges, versus a $45 million gain in 2018.
- Corporate/Other net income was $801 million versus $186 million, largely reflecting discrete tax benefits. Revenue declined 8% as legacy assets continued to wind down.
- EPS growth exceeded net-income growth in part because average common shares outstanding fell 9%; Citi repurchased about 264 million shares. The effective tax rate declined to 18.5% from 22.8%; 2019 included a net discrete tax benefit of about $0.35 per share.
- Beginning in Q4, commercial banking businesses previously reported in GCB were reported in ICG for all periods presented; consolidated net income was unchanged by the reclassification.
Outlook, risks and unusual items
- The filing provides no specific 2020 earnings or revenue guidance. Management said lower interest rates could pressure net interest revenue, retail banking spreads and ICG revenues; Corporate/Other could also be affected by lower rates and investment gains.
- Management described 2019 as progress in profitability and returns, supported by client engagement, expense discipline, positive operating leverage and broad-based loan and deposit growth. It cautioned that 2020 forecasts had weakened and that economic, political and market uncertainties could increase volatility.
- Major risks include recession or geopolitical shocks, trade tensions, emerging-market and foreign-exchange exposures, interest-rate and funding pressure, regulatory and compliance costs, litigation, cybersecurity and operational disruption, and competition. Citi noted uncertainty around Brexit implementation and LIBOR transition. Coronavirus-related economic impacts were identified as an emerging uncertainty in January 2020.
- Credit costs increased, particularly in North American cards; corporate net credit losses rose to $392 million from $205 million. Year-end non-accrual loans were $4.0 billion versus $3.5 billion.
- CECL took effect January 1, 2020. Adoption increased the allowance by approximately $4.1 billion pretax, reduced opening retained earnings by $3.1 billion after tax, and increased deferred tax assets by $1.0 billion. Citi estimated an approximately 25-basis-point total CET1 reduction, phased in over three years.
- Citi disclosed approximately $1.3 billion of reasonably possible unaccrued losses across certain legal and regulatory matters; some matters could not be reasonably estimated. Management said the eventual outcome of disclosed matters was not expected to materially affect consolidated financial condition, but an adverse outcome could materially affect results or cash flows in particular periods.
- At year-end, regulators identified one governance-related shortcoming, but no deficiencies, in Citi’s resolution plan; Citi was required to submit a remediation plan. Citigroup exceeded applicable TLAC and long-term debt requirements.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included hard-to-price fair values, loan-loss allowances and realizability of foreign tax credit deferred tax assets.
Most important facts for investors to verify
- Whether credit losses and card delinquencies continue to rise, and how CECL affects provisions, reserves and capital.
- Whether lower rates pressure net interest revenue and margins more than loan, deposit and fee growth can offset.
- Whether Citi can sustain capital returns while maintaining CET1 and leverage buffers and securing regulatory approval through stress testing.
- How much of reported earnings growth reflects recurring operations versus tax benefits, share-count reduction and the Tradeweb gain.
- Developments in significant litigation and regulatory matters, deferred tax asset utilization, and emerging-market exposures, including Argentina.