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Steep Drop in Citigroup Trading Illustrates Revival Obstacles

A sharp drop in bond trading revenue forced Citigroup Inc. to move their fourth-quarter profit far below their expected figures. This placed doubts over the claim of Chief Executive Vikram Pandit that the bank had turned the corner.

The bank’s first full-year profit since 2007 showed poor fixed income results that left Pandit and other top executives faced with numerous questions about what had probably gone wrong at the bank.

The results showed 4 cents a share or 50 percent less than the amount expected by analysts. This stirred worries that the bank has yet to resolve the operational weaknesses that have plagued it for several years.

The fixed-income revenue of the bank fell 58 percent from the third quarter as compared to a 7.9 percent decrease at major rival JPMorgan Chase & Co. The banks’ contradicting trading results made several investors unsure of what to expect while other financial firms report their profits this week.

Trading is an unstable area throughout the banking industry, said Lee Kyriacou, a former banker and a partner at the consulting firm Novantas.

Trading revenues were hit in some parts by an adjustment in accounting rooting from a market perception that Citi debt was less risky. However, the results stressed fundamental weaknesses as well.

According to Chief Financial Officer John Gerspach in a report during a conference call, this was one of the weaker quarters for trading. He acknowledged Citi’s investment back has also experienced difficulty in other areas and that it fell to eighth place from fourth in Thomson Reuter’s rankings.

Citigroup reported a net profit of $1.3 billion or 4 cents per share for the fourth quarter. The EPS was 50 percent below the expectations of  analysts, Thomson Reuters said.

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Dollar to Fall in 2011 as Fed Keeps Rates Close to Zero- JPMorgan

The dollar will decline this year as the Federal Reserve keeps the interest rates near to zero and the fiscal deficit stays close to record despite the extension of Bush-era tax cuts, the JPMorgan Chase & Co said.

John Normand, the head of currency strategy at JPMorgan London, said that dollar will drop about 12 percent to $1.48 per euro and 7 percent to 78 yen by the end of year 2011. The bank predicts that Canadian dollar will be the best performer among the major currencies this year if oil averages above $100 per barrel.

In addition, Normand said that U.S currency will be utilized to fund the so-called carry trades, which will then be used to buy higher-yielding currencies.

The growth of U.S economy is not enough to support the dollar since it is highly improbable that the Fed will increase interest rates over the next  12 months. Normand said in an interview that few people will purchase the dollar as an investment, but they will use it as a funding currency.

The currency increased 7 percent versus the euro last year. However, it dropped 13 percent against the yen, which is thought as the biggest turn down against a major currency, when record-low interest rates in the U.S reduced the appeal of American assets.

Normand said the Federal Reserve is not likely to increase the interest rates this year for the reason that inflation pressures still remain submissive. The currency might also suffer from increasing current account deficit.

However, the JPMorgan forecast tells that the U.S economy might increase, from 2.9 percent growth in 2010 to 3.3 percent this year. Consumer prices will also rise 1.2 percent from the average 2.5 percent in the past ten years.

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