Citigroup beats 4Q estimates, announces acquisition, looks strong.
By Matt Paolucci

Citigroup, according to sources, is in talks to purchase the investment banking division of Schroders PLC of the United Kingdom. The deal would give Citigroup a larger presence in Europe. The acquisition hasn't been completed and could still fall apart. A Citigroup spokesman declined to comment. The rationale for the planned acquisition, estimated to be about $2 billion, is to combine the fixed-income strength of Citigroup's Salomon Smith Barney investment bank in Europe with Schroders’s mergers and acquisitions expertise. No further details were available.

Citigroup, as you probably know, provides financial products and services to individuals, businesses, governments and financial institutions. Subsidiaries include Citibank, Commercial Credit, Primerica Financial Services, Salomon Smith Barney and Travelers Life & Annuity. Global Consumer delivers banking and lending services in over 50 countries. Its Global Corporate and Investment Bank unit provides financial planning and retail brokerage services, banking and other financial services, and commercial insurance products both in the United States and in almost 100 foreign countries.

On top of the acquisition news, the banking behemoth reported sharply higher net income, surpassing Wall Street expectations on solid performances across all business areas, particularly investment banking. "Each of our businesses reinforced its leadership during the year, creating a strong foundation for future profit growth," said John S. Reed and Sanford I. Weill, Chairmen and Co-Chief Executive Officers of Citigroup. The banking company, which was formed by the 1998 merger between Citicorp and Travelers Group Inc., said forth quarter earnings per share were 75 cents. The current quarter included $51 million in charges, $8 million in accelerated depreciation and a $76 million credit for reversal of prior charges. Net income increased nearly fourfold to $2.62 billion. In the prior year period, net income was $677 million, or 19 cents a share. Analysts surveyed by First Call/Thomson Financial expected the Company to earn 70 cents a share. The previous-year period included a restructuring charge of $726 million, without which the company would have earned $1.4 billion, or 40 cents a share.

Citigroup, with assets of more than $660 billion, generated a return on equity of over 22% in the quarter and said it achieved its stated target of $2 billion in annualized expense reductions. The Company said latest-quarter core earnings reflect 88% higher broad-based revenue gains, continued progress in expense controls and stable credit quality. The banking company's global consumer segment reported an 8% revenue increase, paced by internal growth and acquisitions in cards and consumer-finance segments across Argentina, Mexico, Chile, Australia and the U.S. Total core income within the segment rose 35% to $1.17 billion. Fourth-quarter banking and lending income rose 43% to $612 million. The Company expects to make further cost cuts in 2000.

Efforts to improve sales processes resulted in gains on investment product sales and customer deposits. Global corporate and investment-bank core income surged 136% to $1.31 billion from $553 million a year ago, when major banks were still dealing with the aftershock of the Russian economic debacle that ravaged earnings. Citigroup's corporate and investment-banking unit includes results from Salomon Smith Barney, emerging markets, global relationship banking, global corporate bank and commercial line segments. Return on equity at Salomon Smith Barney rose 31% in the latest quarter. The segment combines Salomon Smith Barney with Citigroup's Global Corporate Bank to generate investment-banking revenue.

The Salomon Smith Barney segment reported fourth-quarter core income of $664 million, exceeding third quarter levels by more than 50%. Citigroup's global investment-management and private-banking unit said core income jumped 34% to $153 million. Total core income in North America rose 28% to $956 million, while total international core income rose 37% to $291 million. Citigroup noted it is looking to expand its online customer base of three million through various Internet initiatives, including its e-Citi Web site, the ClickCredit electronic credit line and its CitiPlaza shopping site. In addition, early cross-marketing measures have yielded "positive" results and will likely increase revenue this year, the Company said.

In its first full year as a merged company with Travelers Group, Citigroup posted operating earnings of $9.95 billion, or $2.85 a diluted share, surpassing the $6.34 billion, or $1.77 a share, it earned a year before.

Citigroup's consumer business, which includes credit cards and personal insurance, earned a record $1.17 billion in the fourth quarter, compared with $872 million a year earlier. Its Salomon Smith Barney securities operation saw profits jump to $664 million from just $13 million in the fourth quarter last year. Its year-ago profits were battered by bond trading losses and poor investment banking results.

"Collaborative efforts among our operations are resulting in new ways to serve customer needs and creating powerful opportunities for our businesses," the Citigroup chiefs said. They added that with revenues twice the level of expenses, the company's efficiency efforts are "magnifying the impact of revenue gains on the bottom line."

Weill and Reed said the Company was set to take full advantage of legislation in the coming year that will modernize the financial industry. "This legislation opens up new horizons for our company and will facilitate our expansion in the global financial services arena," they said. "And, with approximately 30 percent of our earnings generated from outside the U.S. and our recent expansion efforts in Latin America and Japan, we are well positioned in regions likely to achieve higher growth in the coming year," they added.

During the quarter, the Company’s e-Citi unit continued to develop Citigroup's Internet presence. Leveraging its leading market share in cards in the U.S., the Company introduced ClickCredit, an electronic line of credit designed specifically for purchases on the Internet. In tandem, Citigroup launched CitiPlaza, its on-line shopping portal featuring a variety of merchants and shopping services. The Company expects these initiatives to help expand its existing base of more than three million customers who are now doing business with Citigroup on-line. Furthermore, early cross marketing efforts have yielded positive results and are expected to contribute a greater level of revenues in 2000.