Citigroup reported its net income declined 11% from Q4/10 to $1.2 billion in Q4/11, reflecting a $1.2 billion decline in Y/Y revenues, a $465 million increase in operating expenses and a $470 million increase in the provision for taxes, which offset a $2.0 billion improvement in the cost of credit from the prior year period.

The majority of the revenue decline in 2011 was driven by the ongoing reduction in Citi Holdings assets, which declined approximately $90 billion during the year to $269 billion.

Compared to the prior year, total cost of credit in the fourth quarter fell 41% to $2.9 billion. The improvement in credit costs was driven by a 40% decline in net credit losses to $4.1 billion partially offset by a smaller release of credit reserves of $1.5 billion. The credit reserve release reflects a lower level of inherent losses remaining in the portfolio.

Vikram Pandit, Citi’s chief executive officer, said, “Overall, we made solid progress in 2011. We increased our net income to $11.3 billion, up 6% from the previous year, and reached key benchmarks in our consumer businesses, showing our strategy is achieving results. Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment. With Citi Holdings assets at 12% after the transfer of retail partner cards to Citicorp, we are increasingly focused on driving earnings through our core franchise and beginning to return capital to our shareholders this year.”

To read the full text of Citigroup’s earnings news release click here.