Citigroup profit beats estimates on 35% jump in bond trading

[NEW YORK] Citigroup Inc posted third-quarter profit that beat analysts' estimates as bond-trading revenue surged 35 per cent from a year earlier, helped by interest-rate and currencies trading.

Net income slid 11 per cent to US$3.84 billion, or US$1.24 a share, from US$4.29 billion, or US$1.35, a year earlier, the New York-based bank said Friday in a statement. The average estimate for adjusted earnings per share was US$1.15. Revenue fell 5 per cent to US$17.8 billion, topping the US$17.3 billion that analysts predicted.

Citigroup and its rivals have spent years awaiting the end of a fixed-income trading slump that has slashed Wall Street profits and forced thousands of job cuts.

For chief executive officer Mike Corbat, who has largely stuck by the bank's trading business while disposing of other units and assets, the quarter extended a mid-year reprieve after market swings set 2016 off to a sluggish start.

Earlier Friday, JPMorgan Chase & Co reported a 48 per cent surge in quarterly fixed-income trading revenue.

"I am very encouraged by the underlying momentum across our franchise," Mr Corbat said in the statement. Still, "we remain intensely focused on shareholder returns." Revenue fell mostly because of a 48 per cent drop within Citi Holdings, a collection of assets tagged for disposal, and currency swings.

The firm's fixed-income traders generated US$3.47 billion, beating the US$2.95 billion average of seven analysts' estimates compiled by Bloomberg. So-called spread products, as well as rates and foreign-exchange trading showed "improvement," according to the statement. Revenue from equity trading fell 23 per cent to US$663 million, excluding a valuation adjustment last year. That missed the US$786 million average estimate.

Total trading revenue climbed 16 per cent to US$4.13 billion, surpassing Chief Financial Officer John Gerspach's prediction in mid-September for a "mid-single-digits" increase. Investment banking revenue climbed 15 per cent to US$1.09 billion, topping the US$1.06 billion average estimate of six analysts. In the broader institutional clients group, led by President Jamie Forese, revenue was roughly flat at US$8.63 billion.

Mr Corbat has been paring branch networks in markets that don't generate acceptable returns. This month, the firm agreed to sell retail-banking units in Brazil and Argentina, reducing a century-old presence in South America's two biggest economies.

He's also invested in other areas for growth, taking over as the lender behind Costco Wholesale Corp's co-branded credit cards this year from American Express Co. Citigroup struggled with that rollout in June, as customers flocked to social media to complain about glitches and delays. Mr Corbat told analysts in July the bank had deployed "a lot of resources" to ease the deluge.

The CEO labeled the consumer bank a bright spot in the third quarter. Revenue from the division, run by Stephen Bird, rose 1 per cent to US$8.23 billion. Still, the business's net income tumbled 24 per cent.

While the Costco deal helped drive up revenue from Citi-branded cards 15 per cent to US$2.2 billion in North America, taking over the portfolio fueled expenses and required additional reserves for potential loan losses. Citigroup's statement doesn't specify whether Costco had a net negative or positive impact on the bottom line.

Earlier this month, the company said it plans to invest US$1 billion over four years in technology and branch upgrades in Mexico as it looks to move beyond a 2014 loan fraud and settle doubts over its commitment to the nation. The bank also renamed the local unit Citibanamex to better link the Mexico business with its parent.

Latin America consumer revenue rose 5 per cent, excluding a gain in last year's quarter from the sale of a business in Mexico. Revenue in the Asia consumer bank rose 3 per cent. The results exclude the impact of currency movements.

In July, Citigroup cut its forecast for net interest margin, the difference between what it makes on loans and pays for funds - a key measure of banking profitability. It expects the margin to be 2.9 per cent in the second half of 2016, down from a previous forecast of 2.95 per cent. It was 2.86 per cent in the third quarter, the bank said.

The lender's shares fell 6.3 per cent this year through Thursday, trailing the 3 per cent decline of the 24-company KBW Bank Index.

BLOOMBERG