Citigroup sees Q3 earnings rise after accounting gain

CITIGROUP reported higher third-quarter earnings yesterday as the bank set aside less money to cover bad loans and recorded an accounting gain banks can take in turbulent markets.

Investment banking fees dropped as the European debt crisis cut into stock and bond issuance and merger activity. Operating expenses rose, in part because of investments the bank is making to boost its business.

Citigroup’s Irish operations employ 2,000 people.

The third-largest US bank by assets, Citigroup reported net income of $3.77 billion (€2.71bn), up from $2.17bn in the same quarter last year.

The third-quarter results included a pre-tax gain of $1.9bn, due to the bank’s widening credit spreads during the quarter. When a bank’s debt weakens relative to US Treasuries, it can record an accounting gain because it could profit from buying back debt.

Excluding that gain, Citi earned $2.6bn.

Revenue at the bank’s continuing securities and banking business fell 12% excluding the debt value adjustment, to $4.84bn, hurt by declining underwriting and merger advisory fees.

JPMorgan Chase & Co also reported declines in investment banking fees when it reported third-quarter results last week. JPMorgan also reported an accounting gain identical to Citi’s.

Overall operating expenses for Citigroup rose 8% from a year earlier. Operating expenses were $12.46bn and have been hovering around that level since the fourth quarter of 2010.

From the beginning of 2009 through the third quarter of 2010, quarterly operating expenses were typically closer to $11.9bn.

It was not immediately clear if the quarterly earnings were comparable to analysts’ average earnings forecast of 81 cents per share, according to Thomson Reuters I/B/E/S.

Citi, which received three US government rescues at the height of the financial crisis, is seeing its problem loan portfolio shrink.

Nonaccrual loans fell to $7.95bn from $12.46bn a year earlier. The bank’s share price has fallen about 40%.