Citigroup posts 48% jump in profit on reserve release

By David Henry and Anirban Sen

Oct 14 (Reuters) - Citigroup Inc C.N on Thursday reported a 48% jump in third-quarter profit that comfortably beat market estimates, as the bank released loan loss reserves and reaped a windfall of fees from equity underwriting and investment banking advice.

For the three months ended Sept. 30, net income jumped 48% to $4.6 billion, or $2.15 per share, from $3.1 billion, or $1.36 per share, a year earlier. 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 take down $1.16 billion of loss reserves built during the pandemic for potentially sour loans that have not materialized. A year earlier Citigroup had 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 weighed on results as did customers using their stimulus checks to pay down their credit card loans.

"I am quite pleased with $4.6 billion in net income given the environment we are operating in," Chief Executive Officer Jane Fraser said in the results announcement.

Net interest revenue declined 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 down 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 fell 6%.

The results included the impact of a loss on the previously announced sale of its Australia consumer banking business. Excluding the loss on the sale, revenue increased 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 requirements of regulators and fix its systems.

The bank is also spending more on its wealth management business and its transaction services to companies.

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 produced 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.
Reporting by David Henry in New York and Anirban Sen in Bengaluru; Editing by Sriraj Kalluvila

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