Citigroup Inc (C.N) reported a massive jump in quarterly profit as a sharp drop in legal costs and gains from the disposal of unwanted assets masked weak revenue from its core business.
Shares of Citi, which was displaced by Wells Fargo & Co (WFC.N) as the No.3 U.S. bank by assets, fell as much as 7.2 percent to a near three-year low of $42.11 on Friday.
U.S. banks struggled to grow their revenue last year, hurt by near-zero interest rates, a slump in oil prices and investor cautiousness due to worries about slowing growth in China.
Most banks have resorted to aggressive cost controls to boost profits and Citi was no different. The bank has also been exiting less profitable markets and businesses.
Adjusted revenue from its main Citicorp business declined 2 percent in the fourth quarter, but lower costs helped the unit increase profit.
"It is almost impossible to specify what the 'true' operating results were," Oppenheimer analyst Chris Kotowski wrote in a note.
The bank's legal and repositioning costs plunged to $724 million from $3.55 billion, a year earlier. Total expenses fell 22.8 percent to $11.13 billion.
Costs cuts and a smaller legal bill also helped JPMorgan Chase & Co (JPM.N) report a 10 percent rise in quarterly profit on Thursday, and the largest U.S. bank by assets forecast incremental increases in the amount set aside for losses on loans to the energy sector this year.
Citi set aside about $250 million to cover losses related to its energy portfolio and the bank said its 2016 provisioning would depend on where oil prices ultimately settle.
Wells Fargo, the biggest U.S. residential mortgage lender and a major lender to the energy industry, reported a 0.8 percent fall in quarterly profit on Friday as it set aside more money to cover bad loans.
Citi's adjusted revenue rose 4.2 percent to $18.64 billion in the quarter ended Dec. 31, but the increase came from gains on sale of assets from its Citi Holdings portfolio, which shrank 43 percent.
"We have undoubtedly become a simpler, smaller, safer and stronger institution. We have sharpened our focus on target clients, shedding over 20 consumer and institutional businesses in the process," Chief Executive Michael Corbat said in a statement.
On Citi sliding to No.4 ranking among U.S. banks in terms of assets, Chief Financial Officer John Gerspach said the bank was focusing on being efficient, not on winning bragging rights over other banks.
Citicorp achieved an efficiency ratio of 57 percent for 2015, the higher end of Corbat's target of 53−57 percent.
Investors, however, worry that slowing growth in emerging markets, where Citi has more assets than other U.S. banks, may undermine its results.
Citi's net profit rose to $3.34 billion, or $1.02 per share, in the quarter from $344 million, or 6 cents per share, a year earlier.
Excluding items, the bank earned $1.06 per share, beating the average analyst estimate of $1.05, according to Thomson Reuters I/B/E/S.
Investment banking revenue rose 6 percent to $1.13 billion, while fixed income revenue rose 7 percent to $2.22 billion.
Citi shares have fallen about 12 percent so far this year, while the broader KBW bank index .BKX has declined about 10 percent.
(This story has been refiled to correct to insert first name and title of Chief Executive Michael Corbat in paragraph 12)
(Reporting by Sweta Singh and David Henry; Editing by Kirti Pandey)