Citi’s net income was 7 per cent lower than the same period a year ago, but was still better than analysts had expected © Bloomberg

Citigroup has released $1.5bn from its war chest to cover pandemic-era defaults, demonstrating the bank’s faith in the US recovery even as the country is assailed by a fresh surge of Covid-19. 

The release of loan loss provisions was the major driver of Citi’s better than expected profits for the final three months of 2020, echoing results from JPMorgan Chase earlier on Friday.

Net income came in at $4.6bn, 7 per cent lower than the same period a year earlier, but far better than the sharp decreases during the first nine months of the year. 

Earnings per share for the most recent quarter were $2.08 versus the $1.38 expected by analysts in a Bloomberg poll. Revenue at $16.5bn was down 10 per cent year-on-year as lower interest rates compressed the bank’s core lending margins.

“We ended a tumultuous year with a strong fourth quarter,” chief executive Mike Corbat said, adding that “before the pandemic slowed our progress, we had steadily improved our returns and dramatically increased the return of capital to our shareholders.”

Citi aggressively built its provisions for loan losses in the first nine months of the year, booking more than $10bn of net loan loss charges on fears that the pandemic’s economic fallout could cripple borrowers’ ability to pay their debts. 

In the fourth quarter, Citi reduced its war chest for future defaults by $1.5bn, more than cancelling out the $1.47bn of actual credit losses during the quarter and leaving it with a net gain from the movement of provisions for the first time in more than 20 years. 

Mark Mason, Citi’s chief financial officer, hinted at provisions releases last month but analysts did not expect them to be so large. Actual write-offs in the fourth quarter were more than 20 per cent lower than in the third quarter of 2020.

Trading was another bright spot, with equities revenues up almost 60 per cent to $810m, marking that division’s best performance for the year. Fixed income revenues grew 7 per cent to $3.1bn.

Citi is expected to give an update on its plans to buy back shares on an analyst call, after the Federal Reserve’s unexpected December decision to permit US banks to resume limited share repurchases.

The call will also feature analysts’ first public question-and-answer session with Jane Fraser, Citi’s current president, who will become Wall Street’s first female chief executive next month. 

Shares in Citi are down 15 per cent in the last year, a worse performance than a 2 per cent fall at rival Bank of America and a 3 per cent increase at JPMorgan Chase, but better than Wells Fargo’s 28 per cent drop.

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