FOR IMMEDIATE RELEASE
January 25, 1999
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Citigroup Reports Fourth Quarter Core Income of $1.4 Billion, or $.60 Per Share
1998 Core Income $6.3 Billion,
or $2.66 Per Share Versus $3.18 in 1997
Consumer Business Produces Record Results;
Corporate Business Rebounds in Quarter
New York —
Citigroup (NYSE: C) today reported core income for the fourth quarter ended December 31, 1998 of $1.4 billion, or $.61 per basic share and $.60 per diluted share. This compares with core income in the 1997 period of $1.9 billion, or $.83 per share basic and $.80 diluted. The 1998 results reflect record earnings from the company's newly defined Global Consumer business and a partial rebound in its Global Corporate business as the volatility in many of the world's markets diminished.
Net income for the quarter was $677 million, or $.28 per share basic and diluted. This compares with net income in the 1997 period of $1.4 billion, or $.61 per share basic and $.59 diluted. The 1998 total includes $703 million out of an approximately $900 million expected after-tax restructuring charge associated with recently announced business improvement and integration initiatives. These initiatives are projected to yield expense savings of approximately $680 million pretax in 1999, and to reach a run rate of approximately $975 million in annual pretax savings beginning in 2000. In 1999, these actions, together with tighter management of non-customer expenses and realized savings from earlier efficiency initiatives still in progress, are expected to yield gross annual pretax expense savings of approximately $2 billion.
Fourth quarter 1998 net income also includes $65 million of one-time expenses associated with merging Citigroup's predecessor organizations and $42 million of reductions in 1997 charges for the Citicorp cost-management and customer service initiatives and the Salomon Inc merger. Net income for the 1997 quarter includes $496 million of charges for the Salomon merger.
Note: Core income excludes restructuring actions and merger-related expenses, which are included in net income.
Citigroup's "top-line" growth, excluding investment activities, resumed a double-digit pace in the quarter, with adjusted net business revenues up 12% from the 1997 period to $13.3 billion. This includes 20% growth in the Global Consumer business, 3% growth in the Global Corporate business and 18% growth in the Asset Management business. Adjusted operating expenses grew 18% on a comparable basis, including sector increases of 21%, 8% and 31%, respectively. Expenses increased more than revenues primarily because of higher marketing expenditures in the Global Consumer business, increased technology initiatives, including spending for the Year 2000 and EMU, and increased compensation costs in the Global Corporate business. The quarter's expenses also include a $100 million pretax contribution of appreciated venture capital securities to the company's Foundation.
At year-end 1998, stockholders' equity and trust preferreds totaled over $47 billion, which represents one of the largest capital bases of any financial services organization in the world. The company's strong balance sheet is further evidenced by its 8.6% Tier I capital ratio. Total assets for the company were approximately $660 billion at year end.
Full Year 1998
Core income for the full year 1998 was $6.3 billion, or $2.73 per share basic and $2.66 diluted, compared with $7.8 billion, or $3.32 per share basic and $3.18 diluted, in 1997. Net income totaled $5.8 billion, or $2.49 per share basic and $2.43 diluted, compared with 1997 net income of $6.7 billion, or $2.86 per share basic and $2.74 diluted. The 1998 net income total includes the previously mentioned fourth quarter restructuring actions and merger-related expenses plus an additional $191 million reduction in the 1997 Salomon merger reserve. Net income for 1997 includes restructuring charges for the Citicorp cost-management and customer service initiatives and the Salomon merger. Adjusted net business revenues for 1998 were $49.8 billion versus $47.8 billion in 1997. Core return on equity was 14.9% versus 20.2%.
Building a Powerful Franchise
John S. Reed and Sanford I. Weill, Chairmen and Co-Chief Executive Officers, said in a statement, "In just over three months since the formation of Citigroup, substantial progress has been made in our integration, though we are by no means satisfied with the company's performance thus far. We are committed to achieving significantly higher levels of profitability in 1999 and beyond through a combination of business growth, stringent expense control, and continued reduction of risk exposure.
"Toward that end, we are pleased with the actions being taken and the potential in the Consumer business. By offering consumers the broadest range of competitively priced and conveniently obtained products and services, our goal is to secure an increasing portion of the consumer dollar spent on financial products. Cross-selling possibilities are abundant, and we are actively implementing those with the most promise while substantially reducing expenses.
"Progress is admittedly slower in the Corporate business, partly because of the most extreme global market volatility in recent memory. We have, however, significantly reduced our risk profile, particularly in Salomon Smith Barney's global arbitrage operation. Risk management is a priority throughout the global banking business as well, with the goal of deriving a higher percentage of earnings from controllable business operations than has been the case in the past. Expense reduction is an equal priority, as is fostering a collaborative effort in serving clients between Citibank's Corporate Bank and Salomon Smith Barney's Investment Bank. To date, the recently initiated system of joint customer calls has already resulted in the closure of over 70 major collaborative transactions around the world, with significantly more in process.
"Our Asset Management business is progressing according to plan and is positioned for dynamic growth. Access to potential clients has been significantly enhanced by the merger, as has our ability to distribute products such as mutual funds through multiple channels, both in the United States and abroad.
"We are building a unique and powerful franchise in Citigroup, across our individual businesses and around the globe. We are unique in having a solid and growing base of stable and recurring earnings, which account for approximately two-thirds of our income. We are a powerful marketing force with more quality products, services and expertise to offer customers around the world, both individuals and institutions, than any financial services company in existence. We are confident that our growth plan is moving in the right direction."
GLOBAL CONSUMER
4th Quarter Core Income:
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$901 Million, Up 20% from $750 Million in 1997 Period |
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1998 Core Income:
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$3.26 Billion, Up 7% from $3.05 Billion in 1997 |
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Growth in Global Consumer earnings, which includes the North American and International banking/lending businesses and the personal insurance business, continued to accelerate, with core income reaching record levels for the quarter and year. The quarter's results reflect a dramatic improvement in the profitability of the U.S. card operation, together with continued strong growth in insurance, consumer finance and the Asia Pacific region, partially offset by weakness in Latin America and increased marketing and development spending.
North America Consumer
- The Banking/Lending business turned in a strong fourth quarter performance, with core income up 49% from the prior year period to $414 million. Cards was the largest contributor in the quarter, with an 80% increase in earnings to $277 million attributable to pricing changes, lower funding costs and growth in charge volumes, partially offset by higher marketing spending. U.S. bankcard receivables grew 40% largely because of the acquisition of the Universal Card portfolio, while the net credit loss ratio continued to decline. Commercial Credit earned $73 million, up 16% versus the 1997 quarter, on strong growth in receivables across all product lines and distribution channels. Citibanking's fourth quarter earnings of $20 million were down slightly from last year, while full year earnings were up 59% on strong deposit and account growth. Mortgage Banking saw 16% growth in earnings to $44 million in the quarter, resulting from improved credit experience. Refinancing activity also contributed to a positive full year comparison.
- The Insurance sector recorded significant growth across all business units, earning $316 million in the quarter and $1.2 billion for the year. Travelers Life & Annuity's earnings rose 12% from last year's fourth quarter to $125 million, reflecting double-digit growth in annuity account balances and life and long term care premiums. The 14% increase in earnings at Primerica to $103 million reflected continued success at cross-selling a wide range of products, including consumer loans, property casualty insurance, mutual funds and variable annuities manufactured by other Citigroup businesses. Cross-selling these additional products continues to account for an increasing percentage of Primerica's earnings, up to 27% in 1998 from 12% three years ago. Also contributing to earnings growth were an increase in the average face value of new term life policies and continued emphasis on increasing the number of representatives licensed to sell various products and services. Travelers Property Casualty's Personal Lines registered a 17% quarterly earnings gain to $88 million on particularly strong net investment income. Premiums rose 16% on higher auto insurance sales through both independent agent and alternative distribution channels.
International Consumer
International recorded a 13% earnings gain in the quarter to $256 million. The leading contributor was the Asia Pacific region with a 62% increase in earnings to $120 million as a "flight to quality" continued to drive growth in accounts and business volume. This growth also reflects the implementation of a cooperative arrangement with the Japan Postal Service and the introduction in December of Citigroup mutual funds to Japan's newly deregulated securities market, where they immediately became top sellers. Europe, Middle East, Africa (EMEA) also reported higher earnings in the quarter resulting from account and asset growth in Western Europe. This 35% increase in earnings to $42 million was limited by higher investment spending, including further expansion of the company's consumer businesses in Hungary and Turkey. Latin America experienced a 49% quarterly earnings decrease to $29 million because of a declining contribution from Credicard, a 33%-owned Brazilian card affiliate, together with weaker credit experience. Partially offsetting the effects of the recent economic uncertainty in Latin America was income from new acquisitions in the region. The Global Private Bank, which serves high net worth individuals around the world, recorded earnings of $65 million, about even with the 1997 quarter. Revenue growth in the developed markets and Latin America was offset by increased expenses, primarily for staffing, and higher credit costs in Asia.
e-Citi
Net losses for this sector grew 54% and 80% for the quarter and year to $43 million and $142 million, respectively. This reflects spending for the development of electronic banking initiatives, including investment in Direct Access, Citibank's award-winning online banking service, and other Internet-based transactional banking products which will extend customer reach.
Other
Other Consumer business items include unallocated marketing and staff expenses. The $39 million increase in expenses from the 1997 quarter to $42 million reflects outlays for new global advertising, marketing and distribution development initiatives.
GLOBAL CORPORATE
4th Quarter Core Income:
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$464 Million, Down 21% from $585 Million in 1997 Period |
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1998 Core Income:
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$2.0 Billion, Down 42% from $3.5 Billion in 1997 |
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The results of the Global Corporate sector, though down, showed substantial improvement from the preceding quarter, which was depressed by extreme economic turmoil in much of the world. Emerging Markets earnings showed particularly strong growth versus the fourth quarter of 1997. Travelers Property Casualty's Commercial Lines also turned in higher earnings despite continued challenges in its operating environment. These increases were more than offset by still disappointing contributions from Salomon Smith Barney and Global Relationship Banking, which continued to show some adverse effects from market volatility, albeit less severe than in the preceding quarter.
- Salomon Smith Barney reported fourth quarter income of $13 million, a considerable improvement over the third quarter but still below the 1997 quarter's already weak $218 million. Revenues from retail operations, including brokerage commissions and the Consulting Group's industry-leading "wrap fee" investment advisory business, grew 9% from the 1997 period. Investment banking revenues declined, reflecting a slowdown in equity underwriting and merger and acquisition activities in the quarter. Volatility in the global markets continued to negatively affect principal trading results, particularly in fixed income trading, as well as in global arbitrage as we continued to scale back non-strategic positions. Non-interest expenses rose 10% from the 1997 quarter, primarily from higher compensation expense, reflecting the unit's year-end bonus award decisions.
- Emerging Markets income of $220 million represented a 189% increase from the 1997 quarter. Net revenues rose 30%, driven by significantly higher trading income and improved lending results, somewhat offset by reduced asset sales. Full year revenue growth was fueled by a substantial increase in transaction banking services as well as higher trading income. Operating expenses were held to year ago levels in the quarter despite ongoing investment spending to further develop Citigroup's franchise in the emerging markets. Credit costs of $102 million, while considerably above the fourth quarter of 1997, were stable versus the previous quarter, excluding the impact of Russia.
- Global Relationship Banking reported fourth quarter earnings of $30 million, well above its third quarter result but still significantly below income in the 1997 quarter of $125 million. Revenues fell 11%, reflecting substantially lower asset sales, primarily commercial real estate, as well as lower corporate finance and loan syndication activity, all of which were especially strong in the year ago quarter. These reductions were moderated by a double-digit increase in transaction banking services. Operating expenses rose 11%, reflecting increased technology spending, particularly for EMU adaptations, which were successfully navigated, and for the Year 2000. Results were aided by credit benefits of $59 million in the quarter, primarily from gains on the sale of Other Real Estate Owned (OREO) properties.
- Travelers Property Casualty's Commercial Lines earnings increased 21% in the quarter to $201 million on particularly strong net investment income and continued expense discipline. Premiums were about even with the prior year period, reflecting the company's underwriting restraint in the face of intense price competition. The statutory combined ratio was also relatively stable at 108.5%.
ASSET MANAGEMENT
4th Quarter Core Income:
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$51 Million, Down 16% from $61 Million in 1997 Period |
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1998 Core Income:
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$273 Million, Up 12% from $243 Million in 1997 |
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SSB Citi Asset Management Group earnings declined in the quarter as a result of increased spending to build its Citibank Global Asset Management investment research and analysis capabilities, partially offset by a 4% increase in the earnings of its Salomon Smith Barney Asset Management operation to $58 million. The segment's pretax profit margin for the quarter was 25.7%, down from 33.3% in the prior year.
Assets under management rose 25% from the fourth quarter of 1997 to $327 billion, reflecting strong growth in all asset categories. Contributing to this growth were the acquisition of J.P. Morgan's Australian asset management business unit with $4.6 billion of assets under management; the launch of six new retail mutual fund products, which raised over $1.7 billion; continued strong mutual fund sales through Primerica; significant flows into money market and other short-term funds, primarily in the year's second half; and positive market performance.
Cross-selling efforts continued to be successful. The amount of proprietary mutual funds sold through Primerica more than doubled in the quarter and accounted for 60% of Primerica's total 1998 mutual fund sales. SSB Citi Asset Management's increased support for Salomon Smith Barney's retail channel resulted in the capture of 31.5% of the brokerage operation's mutual fund sales, up from 26.5% in 1997. During the second half of 1998, SSB Citi also embarked on several new distribution initiatives made possible by the Citigroup combination, including the sale of Salomon Brothers open-end mutual funds through the Citibank Consumer Bank and the distribution of the Citifunds Investment Series through the Global Consumer Bank in Japan.
CORPORATE ITEMS
4th Quarter Core Loss:
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$14 Million Versus Core Income of $8 Million in 1997 Period |
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1998 Core Loss:
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$159 Million, Down 57% from $370 Million in 1997 |
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Corporate Items include net treasury results, corporate staff and similar expenses, and variances between the consolidated and local tax rates for banking segments. The loss for the 1998 quarter includes a $100 million pretax contribution of appreciated venture capital securities to the company's Foundation, which had minimal impact on Citigroup's earnings after related tax benefits and investment gains.
INVESTMENT ACTIVITIES
4th Quarter Core Income:
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$1 Million Versus $530 Million in 1997 Period |
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1998 Core Income:
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$929 Million, Down 28% from $1.3 Billion in 1997 |
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The declines in earnings from Investment Activities for the quarter and the full year reflect substantially lower equity investing activities (including the write-down of an investment in Latin America), reduced LDC debt sales and lower insurance portfolio gains. Citigroup's $68 billion investment portfolio consists mainly of fixed income securities with average quality ratings of A+/A1 and also includes proprietary equity investments. The majority of the portfolio is held by the insurance companies, whose fixed income securities, including short-term investments, have an effective duration of 5.1 years.
Share Repurchase
During the fourth quarter of 1998, Citigroup repurchased 24.4 million shares of its common stock for a total cost of $1.1 billion. This lowered the weighted average common shares for basic earnings per share to 2,233 million in the quarter and for diluted earnings per share to 2,290 million. For the full year 1998, the company repurchased 62.7 million common shares for a total of $3.1 billion to offset the dilution from the issuance of shares under incentive compensation plans.
Citigroup provides a broad array of financial products and services to 100 million customers in
100 countries and territories around the world. Its businesses include Citibank, Commercial Credit, Primerica, Salomon Smith Barney, SSB Citi Asset Management, Travelers Life & Annuity, and Travelers Property Casualty Corp. (NYSE:TAP).
