WELLS FARGO trounced rival Citigroup in the fourth quarter, as the biggest US bank by market value defied the deep freeze affecting capital markets at the end of the year to achieve record earnings.

Underlining the diverging fortunes of the two US banks, Citi yesterday reported a decline in its investment bank, which slumped to a loss after trading revenues fell sharply. This contributed to an 11 per cent year-on-year decline in net income at the group.

Citi’s net income of $1.2 billion, or 38 cents a share, missed the consensus analyst estimate of 51 cents a share. The securities and banking division produced a $163 million fourth-quarter loss compared with a profit of $212 million a year ago.

“Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment,” said Vikram Pandit, chief executive, as he outlined cost reductions of $2.5-$3 billion this year.

Citi fell more than 5 per cent in intraday trading, while shares in Wells, which also reported fourth-quarter earnings yesterday, rose almost 2 per cent. After last year overtaking JPMorgan Chase as the US bank with the biggest market capitalisation, Wells’s equity is now worth more than Barclays, BNP Paribas and Goldman Sachs combined.

With its much smaller investment bank, Wells’s net income rose 20 per cent to $4.1 billion, or 73 cents a share, narrowly ­beating analyst expectations. That compared with $3.4 billion, or 61 cents a share, which the bank reported for the last quarter of 2010.

In contrast, Citi’s revenues fell 7 per cent compared with the final quarter of 2010, worse than expected, although the declines were concentrated in the Citi Holdings portfolio of assets that Mr Pandit has been winding down.

Wells said its exposure to the euro zone periphery was minimal.

“We don’t have a lot of direct exposure to the troubled countries of Europe,” John Stumpf, chief executive of Wells, said. The bank could benefit from the crisis, he said, snapping up loan and securities portfolios being sold off by ailing European lenders.

The bank, which has a relatively high tier one common equity capital ratio of 9.46 per cent, suggested it could continue to acquire loan portfolios. It has already purchased $2.6 billion of loans from Irish banks. – (Copyright The Financial Times Limited 2012)