- 18Oct
Citigroup Inc. (C) managed to grow its core businesses broadly in the third quarter. Revenue and profits rose from the year-earlier period despite wobbly capital markets as Chief Executive Vikram Pandit appeared to turn the ship in a new direction.
The bank's third-quarter profit was $2.2 billion, up from $101 million a year earlier, with per-share profit of seven cents coming in just above analysts' estimates. The amount the bank set aside for credit losses fell. Revenue in its core banking businesses rose 7% on the year, to $16.3 billion, excluding accounting changes and the businesses and assets it wants to divest -- but fell 1.2% from the previous quarter.
That year-over-year growth contrasts with falling revenue at J.P. Morgan Chase & Co. (JPM), the only other large bank to report so far.
Much of Citi's strength came from emerging markets. Retail banking results in the U.S. remain lackluster, Chief Financial Officer John Gerspach conceded during a conference call with investors.
"The economies are looking better in Asia and the emerging markets in general compared to the developed economies," Gerspach said. Even abroad, he said, is "not robust," though at least in those markets Citi is "able to replenish loans as they come due." Trade finance was a particular bright spot, Gerspach said. He said the global political discontent about currencies hasn't impacted Citi.
To Pandit, the third consecutive quarterly profit is "continued evidence that we are successfully executing our strategy and we believe we have put in place all the elements for continued profitability," he said in a press release.
Pandit said during a conference call with investors Citi's managers "anticipate that we should be in a position to return capital to our shareholders in 2012," while "2011 will be a year of rulemaking in the U.S. and moderate calibration across the industry. "
Citi rose 4.3%, to $4.12.
"Revenues come in better than expected," Sanford C. Bernstein & Co. analyst John E. McDonald wrote in a research note. Glenn Schorr of Nomura wrote, "non-US growth is still the differentiator" for Citi.
Total credit-loss provisions were $5.92 billion, down from $9.1 billion a year earlier and $6.67 billion in the prior quarter. The bank took $2 billion out of its reserve for future loan losses, $500 million more than in the second quarter.
Citi's investment banking results were weaker; a falloff in trading hurt results at J.P. Morgan Chase & Co. (JPM) and are expected to hit Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS). Citi's stronger historical focus on debt underwriting cushioned the decline from the strong second quarter. Capital markets revenue rose 14% from a year earlier, and profits rose a strong 66%, to $1.4 billion. Consumer banking revenue rose 33% and that division's profit rose 75%, to $1.2 billion.
The legacy businesses and assets in the Citi Holdings division it is selling or running off continued to be a drag on results; Holding's loss was $1.1 billion.
Citi continued splitting off assets. Recently it sold $3.5 billion of commercial real estate loans to J.P. Morgan at a small profit, according to people familiar with the matter.
Citi's total revenue rose 2% from a year earlier, to $21 billion, but fell 6% from the second quarter -- and adjusted for the accounting change earlier this year revenue fell 10% from a year earlier.
Analysts polled by Thomson Reuters had most recently forecast earnings of 6 cents on $21 billion in revenue. In the year-earlier period, Citi lost 27 cents a share. The U.S. Treasury, which bailed out Citi during the financial crisis and subsequently converted its holdings into common stock, still holds 12.4% of its stock.
Gerspach reiterated that Citi has avoided the massive foreclosure trouble plaguing several of its big bank competitors, and said even the risk of private investors forcing the bank to repurchase mortgage-backed securities is limited. Unlike Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC), Citi didn't acquire banks with big mortgage servicing businesses.
