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Citigroup Shares Rise as Pandit Sees Return of Capital by 2012

Citigroup Inc., 12 percent-owned by U.S. taxpayers, rose in New York trading after earnings beat analysts’ estimates and Chief Executive Officer Vikram Pandit said the bank may return capital to shareholders in 2012.

Citigroup climbed 22 cents, or 5.6 percent, to $4.17 in New York Stock Exchange composite trading at 4:15 p.m. The shares, which have gained 26 percent this year, advanced today after the New York-based company said third-quarter net income was $2.17 billion, or 7 cents a share. Ten analysts surveyed by Bloomberg estimated per-share earnings of 5 cents.

A reduction in reserves brings Pandit, 53, one quarter closer to achieving his first annual profit after losses in 2008 and 2009 that totaled $29.3 billion. A return of capital would be Citigroup’s first reward for shareholders since the bank, the nation’s third-biggest, cut its dividend in 2008 and then eliminated it in February 2009.

“They’re going in the right direction,” said David Hendler, an analyst with CreditSights Inc. “It’s a good goal and they’re working towards that goal.”

Losses from bad loans declined to $7.66 billion from $11 billion as Citigroup benefited from fewer consumers falling behind on loan payments. The bank reduced loan-loss reserves by $1.99 billion.

Earnings rose from a profit of $101 million in the same period a year earlier.

‘Solid Results’

The share price gain was the biggest in the 24-company KBW Bank Index.

A return on capital would depend on the requirements of the Basel Committee on Banking Supervision when they are completed, Pandit told analysts on a conference call.

“We anticipate that we should be in a position to return capital to our shareholders in 2012, subject to our regulators providing additional guidance to the industry,” Pandit said.

Citigroup’s revenue fell 10 percent to $20.7 billion, while expenses declined 2.6 percent to $11.5 billion. The bank’s compensation and benefits expense was $6.12 billion in the third quarter, down from $6.14 billion a year earlier.

Fixed-income trading revenue fell by 13 percent from a year earlier to $3.5 billion. Stock-trading revenue more than doubled to $1.04 billion, the company said. Investment-banking revenue tumbled 20 percent to $930 million, while private-banking revenue dropped 5 percent to $497 million.

Consumer Credit

“We benefited again this quarter from improvement in consumer credit trends in both North America and internationally,” Chief Financial Officer John Gerspach said in a conference call with reporters.

Citigroup didn’t record “significant” provisions for litigation stemming from inquiries into whether banks made misstatements in court while foreclosing on homes -- such as by having “robo-signers” vouch for the accuracy of filings without checking underlying records, Gerspach said on the media call. JPMorgan Chase & Co. last week said it set aside $1.3 billion of additional litigation reserves during the quarter, including expenses for “mortgage-related matters.”

No ‘Robo-Signers’

Citigroup, which continued seizures while Bank of America Corp. and other rivals delayed evictions or foreclosure sales, found no evidence of robo-signing during an “intensified” internal review, Gerspach said.

“We’re fairly confident that we have not relied on robo- signers,” he said.

Citigroup, the fourth-biggest U.S. mortgage underwriter and servicer, recorded a $322 million cost in the quarter to bolster reserves for potential putbacks of soured mortgages. The bank’s repurchase reserve stood at $952 million as of Sept. 30, up from $295 million a year earlier.

This year through Sept. 30, the bank has had to buy back 2,500 loans, about 92 percent of them from the government- sponsored entities Fannie Mae and Freddie Mac, Citigroup said in a presentation on its website. About 200 of the loans repurchases came from private investors, the bank said.

“We are monitoring the claims activity, but we just haven’t seen a lot of the claims activity to date coming out of those private issuances,” Gerspach said on the call with reporters.

JPMorgan took a $1 billion third-quarter cost to increase its mortgage-purchase reserves to about $3 billion.

Investment Banking

Citigroup’s trading and investment-banking unit posted net income of $1.38 billion, compared with $829 million in the same period last year. The bank slipped to fourth place among underwriters of U.S. bonds during the quarter, down from No. 1 a year earlier, according to data compiled by Bloomberg. The bank underwrote $7.85 billion of global equity offerings to make it the fifth-largest in the industry, rising from seventh last year, the data show.

Citi Holdings, the division created to hold businesses tagged for disposal, reported loan losses of $4.64 billion, down from $7.37 billion a year earlier. Pandit reduced assets in Citi Holdings to $421 billion from $556 billion a year earlier. Pandit said in September that he expects total assets in Citi Holdings to fall below 20 percent of the bank’s balance sheet by the end of 2010. Citi Holdings accounted for $1.54 billion of the overall reserve release.

Book Value

The company took a $435 million loss on the sale of Student Loan Corp., a Citi Holdings business, during the quarter. Gerspach also told investors that the bank lost “a couple of hundred million” dollars on the sale of a real-estate loan portfolio to JPMorgan during the quarter.

David Hilder, an analyst with Susquehanna Financial Group LLLP, told investors in a September note that Citi Holdings assets may be sold below their book value. Gerspach agreed on the conference call.

“The risk, of course, is that market conditions really dry up, we get that double-dip, and they’re unable to sell those assets or they have to do so at distressed prices,” said William Fitzpatrick, a financial analyst with Optique Capital Management, which has $750 million under management. “That for me remains the wild card for Citigroup.”

The U.S. Treasury Department reduced its stake in Citigroup to 12 percent during the quarter, booking a $1 billion profit for U.S. taxpayers who provided a $45 billion bailout to the bank in 2008. The Treasury, headed by Timothy F. Geithner, sold $2.2 billion of Citigroup trust-preferred securities this month.

“I always keep hearing about a bailout,” said Alex Lieblong of Key Colony Management LLC, which holds 5.3 million Citigroup shares. “It was a pretty good bailout for the government.”

Citigroup’s employees totaled 258,000 at end of the third quarter, down 1,000 from the end of June and down 7,000 from the end of December 2009.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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