Citigroup Inc said its quarterly profit dropped 86 percent, hurt by legal settlements and falling bond trading revenue, sending the bank's shares down more than 4 percent.

The bank took $3.5 billion of charges for legal settlements, matching the figures foreshadowed by Chief Executive Michael Corbat in December. But a 16 percent drop in fixed-income trading revenue was steeper than many analysts had expected, and earnings fell short of analysts' estimates.

Citi suffered on a number of fronts during the quarter. The bank, which gets about half of its revenue from overseas, took a hit from the strong dollar, for example. The bank also posted a loss from assets it took on before the financial crisis.

The profit setback comes as the Federal Reserve considers the bank's plan to return capital to shareholders, through some combination of share buybacks and dividends.

Corbat and Chief Financial Officer John Gerspach expressed optimism that the Fed would approve the bank's capital plan.

An earlier plan was rejected due to concerns about the processes Citi uses to determine how its business would be hit by stressful situations.

"I feel good about our submission," Corbat said on a call with analysts, adding that he was looking for "an unqualified pass" from the Fed to return capital.

Gerspach said the bank was looking forward to hearing the results of the Fed's decision in March.

Citigroup's stock fell to $46.94 in early afternoon trading on Thursday after the bank posted an adjusted net profit of $346 million, or 6 cents per share, down from $2.60 billion, or 82 cents per share, a year earlier.

Net income fell 86 percent to $350 million.

Analysts on average had expected earnings of 9 cents per share, including charges, according to Thomson Reuters I/B/E/S.

Adjusted revenue fell 0.8 percent, largely due to the drop in revenue from fixed-income trading.

Like JPMorgan Chase & Co and Bank of America Corp, Citi was hit by a sudden increase in volatility in bond markets in December.

Adjusted operating expenses increased 21 percent.

Citigroup may have lost money from its portfolio of troubled assets, but it made further progress in winnowing it down. Assets at the end of December stood at $98 billion, down from $103 billion in the third quarter of 2014.

The bank's most recent legal woes stem from government probes into alleged manipulation of currency markets and Libor interest rates as well as lax compliance with money laundering rules. The company still faces other possible actions by the U.S. Department of Justice and Federal Reserve.

Gerspach said Citi expected "a significant reduction" in legal costs in 2015.