Citigroup Net Income Higher In Third Quarter As Less Money Set Aside For Bad Loans

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(Joe Rauch) - Citigroup Inc reported higher third-quarter earnings on Monday as the bank set aside less money to cover bad loans and recorded an accounting gain banks can take in turbulent markets.

Investment banking fees dropped as the European debt crisis cut into stock and bond issuance and merger activity. Operating expenses rose, in part because of investments the bank is making to boost its business.

Citigroup, the third-largest U.S. bank by assets, reported net income of $3.77 billion, or $1.23 per share, up from $2.17 billion, or 72 cents per share, in the same quarter last year.

The third-quarter results included a pre-tax gain of $1.9 billion, or 39 cents per share after taxes, due to the bank's widening credit spreads during the quarter. When a bank's debt weakens relative to U.S. Treasuries, it can record an accounting gain because it could profit from buying back debt.

Excluding that gain, Citi earned $2.6 billion, or 84 cents per share.

Revenue at the bank's continuing securities and banking business fell 12 percent excluding the debt value adjustment, to $4.84 billion, hurt by declining underwriting and merger advisory fees.

JPMorgan Chase & Co also reported declines in investment banking fees when it reported third-quarter results last week. JPMorgan also reported an accounting gain identical to Citi's.

Overall operating expenses for Citigroup rose 8 percent from a year earlier. Operating expenses were $12.46 billion and have been hovering around that level since the fourth quarter of 2010. From the beginning of 2009 through the third quarter of 2010, quarterly operating expenses were typically closer to $11.9 billion.

It was not immediately clear if the quarterly earnings were comparable to analysts' average earnings forecast of 81 cents per share, according to Thomson Reuters I/B/E/S.

Citi, which received three U.S. government rescues at the height of the financial crisis, is seeing its problem loan portfolio shrink.

Nonaccrual loans fell to $7.95 billion from $12.46 billion a year earlier.

The bank's share price has fallen about 40 percent this year, in line with declines for other large banks.

Citigroup shares rose 2 percent to $29.00 in early trading.

(Reporting by Joe Rauch in Charlotte, N.C.; editing by John Wallace)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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