Citigroup profit falls on higher loan-loss reserves, weak dealmaking activity

CITIGROUP reported a 25 per cent drop in third-quarter profit on Friday (Oct 14) as the most global of US banks set aside funds to cover soured loans from a potential economic downturn, while its investment bank struggled with a slump in global dealmaking.

The US Federal Reserve’s aggressive actions to stamp out decades-high inflation have triggered fears of a downturn in the economy that could trigger a surge in loan losses for the banks.

Citi added US$370 million to its loan-loss reserves in the latest quarter, compared with a reserve release of US$1.16 billion a year earlier.

The increase in reserves pushed up Citi’s overall credit costs to US$1.36 billion, the highest in eight quarters since the third quarter of 2020.

That compares with a benefit of US$192 million a year earlier when extraordinary government stimulus helped the economy to rebound from pandemic lows.

Investment banking revenue tumbled 64 per cent to US$631 million from a year earlier when Citi had its best M&A quarter and the second-best investment banking quarter in a decade.

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Shares of Citi, which were down 1.2 per cent, have been trading at about half of the company’s net worth as it struggles to keep pace with larger rivals in terms of stock valuations and profitability.

Citi will likely take “3-5 years to hit more ‘normalised’ profitability measures”, said Eric Compton, equity strategist at Morningstar.

Revenue for Citi’s Treasury and Trade solutions business, which processes nearly US$3 trillion a day in 140 currencies and 160 countries, rose 40 per cent to US$3.2 billion as fees and trade loans grew.

Net profit was US$3.5 billion, or US$1.63 per share, in the three months ended Sep 30, compared with US$4.6 billion, or US$2.15 per share, a year earlier.

Analysts on average had expected a profit of US$1.42 per share, according to Refinitiv IBES data. It was not immediately clear if the reported numbers were comparable to estimates. REUTERS