Oct. 17 (Bloomberg) -- Citigroup Inc., the biggest U.S. financial-services firm, may report a 6 percent drop in profit today, its first earnings decline in more than a year, after credit-card defaults climbed and rising short-term interest rates made consumer lending less profitable.

Third-quarter net income probably fell to $4.99 billion, or 99 cents a share, based on the average estimates of analysts surveyed by Thomson Financial. A record quarterly profit at the New York-based company's investment-banking unit may raise earnings above estimates when Citigroup reports at 6 a.m. today, investors said. Revenue may be little changed at $20.5 billion.

``The most important thing to watch with Citi is what happens at the investment bank,'' said Kent Forkner, who helps oversee $60 billion for Boston Company Asset Management and owns Citigroup shares. ``That will make up for any potential shortfalls in their consumer bank and credit-card businesses.''

Citigroup's borrowing costs have edged higher as the Federal Reserve raised interest rates, trimming profit margins from loans, and credit-card defaults are up ahead of stricter bankruptcy laws that take effect today.

Equity trading revenue at Citigroup probably rose 68 percent to $825 million, and revenue from fixed-income trading probably climbed 24 percent to $2.25 billion, Piper Jaffray's Collins wrote in a Sept. 28 report to clients.

Investment Banking

Earnings at Citigroup's investment banking, trading and transaction services unit probably rose 25 percent to $1.81 billion, according to estimates from Merrill Lynch & Co. analyst Guy Moszkowski, who works in New York. Collins predicted $1.69 billion.

Operating profit at Citigroup's consumer bank, which includes credit cards, retail branches and loans to individuals, probably slipped 5 percent from a year earlier to $2.95 billion, said Andrew Collins, an analyst at Piper Jaffray Co. in New York.

Citigroup's credit-card division probably will set aside $895 million for bad loans, up 39 percent from a year earlier, said Collins, who has a ``market perform'' rating on the company. He forecast an 18 percent drop in operating profit at the unit.

To contact the reporter on this story: Justin Baer in New York at jbaer1@bloomberg.net

Last Updated: October 17, 2005 00:03 EDT