Oct 14 Reuters - Citigroup Inc on Thursday released a 48% increase in 3rd quarter profit that comfortably beat market estimates as the bank read loan loss reserves and reaped a windfall of fees from equity underwriting and investment banking advice.
For three months ended Sept. 30 net income jumped 48% to $4.6 billion, or $2.15 per share, a year earlier from $3.1 billion, or $1.36 per share. Analysts on average had expected a profit of $1.65 per share, according to Refinitiv IBES data.
The bank’s profits were buoyed by its decision to remove $1.16 billion of loss reserves built during the pandemic for potentially sour loans that have not materialized. A year earlier, Citigroup added $436 million to its reserves.
Investment banking revenue increased 39% to $1.9 billion, helping offset a 16% decline in fixed-income revenue from a year earlier when there was unprecedented volatility in the markets.
Higher expenses and lower net interest revenue carried out results as did customers using their stimulus checks to pay down their credit card loan approvals.
I am quite pleased with $4.6 billion in net income given the environment we are operating in, chief executive Jane Fraser said in the announcement.
Net interest revenue dropped 1% from a year earlier but was 2% more than in the second quarter, suggesting an end to the downward trend that started when the pandemic began and the Federal Reserve cut interest rates to near zero and many borrowers paid their loan balances.
Lower interest rates also hurt Citigroup's Treasury and Trade Solutions business, which saw revenue decline 4% even as it collected more fees and saw growth in trading.
Revenue from Citi-branded cards in North America declined 1% and revenue from cards issued for retailers dropped 6%.
The results included the impact of loss on previously announced sale of its Australia consumer banking business. Excluding the loss on the sale, revenue growth 3%, driven by the institutional business.
Operating expenses increased 5% to $11.5 billion as the company ramped up spending on technology and personnel to improve its control systems to comply with demands made by regulators a year ago.
Investors have been particularly concerned about Citigroup's expenses as the bank has not said how much money and time it will take to meet the requirements of regulators and fix its systems.
The bank is also spending more on its market and its wealth management business services.
Fraser expects the increased spending to bolster what she has described as Citigroup's transformation into a more efficient and focused company that will earn returns closer to its peers.
Citigroup has recorded lower returns on equity than competitors for more than a decade and the stock market values the company at less than shown on its balance sheet.