Citigroup Beats Estimates as Cost Cuts Outpace Revenue Drop

Citigroup Boosts Profit More Than Analysts Estimated

Citigroup Inc., the U.S. bank that gets more than half its revenue from abroad, boosted profit more than analysts estimated after a drop in legal costs helped it cut expenses faster than revenue fell.

Third-quarter net income rose 51 percent to $4.29 billion, or $1.35 a share, from $2.84 billion, or 88 cents, a year earlier, the New York-based lender said Thursday in a statement. Earnings amounted to $1.31 a share excluding accounting adjustments, beating the $1.27 average estimate of 26 analysts surveyed by Bloomberg.

Chief Executive Officer Michael Corbat, striving to meet financial goals by the end of this year, has sold assets and closed branches to shave costs and focus on affluent consumers and multinational corporations. That helped the firm weather the third quarter’s global market turmoil, which hurt revenue and profits at peers including JPMorgan Chase & Co.

“Citi is actually by some measures performing better than JPMorgan in terms of expense efficiency and capital,” David Hilder, an analyst at Drexel Hamilton LLC, said in an interview before results were reported.

Citigroup climbed 4.4 percent to $52.97 at 4 p.m. in New York. The shares have dropped 2.1 percent this year, outperforming the 4.2 percent decline of the 24-company KBW Bank Index.

Expenses Decline

Expenses fell 18 percent to $10.7 billion from a year earlier, while revenue slid 7.8 percent to $18.5 billion, excluding accounting adjustments. That’s a bit less than the average estimate of $18.6 billion in a Bloomberg survey of 18 analysts.

Trading revenue declined 10 percent on a slump in earnings from fixed-income products, worse than the roughly 5 percent drop Chief Financial Officer John Gerspach signaled on Sept. 16. That total excludes a valuation adjustment in the equities business that was booked during the third quarter.

“The quarter had more than its fair share of volatility and our results speak to the resilience of our franchise globally,” Corbat said in the statement.

Trading activity has picked up in October compared with the last few weeks of the third quarter, Gerspach said on a conference call with reporters. It’s too soon to develop an outlook for the rest of the year, he said.

Trading Activity

“Activity is certainly higher than what we saw at the back half of September, but it’s still running at somewhat muted levels,” Gerspach said.

JPMorgan CFO Marianne Lake earlier this week also discussed the start of the fourth quarter, saying that “so far in October, across asset classes, the markets are pretty quiet.”

Cost cuts helped Bank of America Corp. boost net income to $4.51 billion from a year-earlier loss. While net income rose 22 percent to $6.8 billion at JPMorgan, earnings were short of analysts’ estimates, hurt by a slump in trading and mortgage-banking results.

Corbat has taken a scalpel to those areas of Citigroup he doesn’t consider essential. In September, less than a year after touting Boston as one of seven major U.S. markets, the bank said it would close six branches there in January and another 11 in the surrounding area. In August, Corbat agreed to sell a hedge-fund administration business.

Citigroup’s legal expenses dropped 76 percent to $376 million from a year earlier, while repositioning charges plummeted even faster.

OneMain Financial

A planned disposal of the OneMain Financial subprime-lending unit hit a snag, with the acquirer, Springleaf Holdings Inc., saying in August that the U.S. Department of Justice and some state attorneys general expressed concerns about the deal. Gerspach said Thursday the deal is expected to be completed by year-end.

Citi Holdings, the division housing the unit, reported an adjusted profit of $47 million in the quarter as assets shrank to $110 billion.

Profit at the institutional clients group, run by President Jamie Forese, fell 8.9 percent to an adjusted $2.27 billion. The unit houses the bank’s trading, corporate and investment-banking, private bank and transaction-services businesses. Profit in global consumer banking, led by Stephen Bird, fell 11 percent to $1.67 billion.

Adjusted fixed-income trading revenue fell 16 percent to $2.58 billion, missing the $2.78 billion estimate of five analysts surveyed by Bloomberg, while equity-markets revenue rose 31 percent to $996 million. The equities figure included a $140 million positive valuation adjustment that partially offset a $175 million decline in the second quarter. Paco Ybarra oversees those businesses.

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