(Recasts with profit beating estimates, adds details,
background on rivals, updates share price)
By Sweta Singh and David Henry
Oct 14 Citigroup Inc, the fourth-biggest
U.S. bank by assets, beat expectations for third-quarter net
profit on Friday after trading revenue surged 35 percent.
The resurgence, which was echoed at rival JPMorgan,
is a boost for Chief Executive Michael Corbat, who has stuck
with the bank's trading business while shrinking large parts of
its consumer banking business in overseas markets.
While net income fell 11 percent to $3.84 billion, or $1.24
per share, it exceeded the average estimate of $1.16 per share,
according to Thomson Reuters I/B/E/S.
Total adjusted revenue fell 4 percent to $17.76 billion,
again beating the average estimate of $17.36 billion.
Citigroup's shares rose 2.2 percent to $49.58 in early
trading, similar to gains at rivals JPMorgan, Wells Fargo
, Goldman Sachs and Morgan Stanley, as
investors lauded a solid start to the U.S. bank earnings season.
Both JPMorgan and Wells Fargo beat third-quarter profit
forecasts on Friday. Bank of America reports results on
Monday, followed by Goldman Sachs and Morgan Stanley later next
Revenue at Citi's institutional clients group, which
includes trading and investment banking, rose 13 percent,
boosted by volatility in fixed income markets.
That volatility and greater activity were spurred by
Britain's June vote to leave the European Union, changing
expectations for monetary policy in the United States, Europe
and Japan, and money market reforms.
However, equity market revenue fell about 34 percent as
political uncertainty discouraged companies from initial public
offerings and share offers. JPMorgan reported a 1 percent
Citi's global consumer banking division had a less stellar
performance. Net income fell by nearly a quarter due to a higher
cost of credit and higher operating expenses.
Part of those expenses were due to the cost of becoming the
lender behind retailer Costco Wholesale Corp.'s co-branded
credit cards this year from American Express Co.
Citigroup said revenue from its North American branded card
business grew 15 percent to $2.2 billion, reflecting the
addition of the Costco portfolio as well as modest organic
growth driven by higher volumes.
The business accounts for about a quarter of its total net
income and a third of profit from its global consumer
Citigroup executives have said the branded card business is
expected to generate a 2.3 percent return on assets, more than
double the profitability of the entire company.
Overall operating expenses fell 2.5 percent to $10.40
Despite the solid performance in investment banking, Corbat
fell further behind in his quest to reach a 10 percent return on
tangible common equity, a key measure of profitability. It
fell to 7.8 percent from 8.9 percent a year earlier.
Corbat had set the target of reaching a 10 percent return on
equity by 2015 shortly after taking the reins in 2012.
But the bank has found it hard to hit the target as its
earnings are squeezed by low interest rates and the U.S. Federal
Reserve's requirement that banks retain more capital.
Analysts say the Fed would need to allow the bank to return
as much as it earns to significantly improve shareholders'
returns and the Fed now lets Citi distribute about 65 percent of
its capital. Corbat reached that level in June when he won
approval from the regulator to triple the bank's dividend and
increase spending on its stock buybacks by more than a third.
Previously, Citi had failed Fed tests of its capital plans
The bank's common equity Tier 1 capital rose to 12.6 percent
from 12.5 percent in the second quarter even as Citigroup
returned capital to shareholders through dividends and share
The stock had lost 6.3 percent this year as of Thursday's
closing price of $48.47.
Citigroup's stock has languished at a steep discount to its
tangible book value, which was $64.71 at the end of September.
(Writing by Carmel Crimmins; Editing by Anil D'Silva and