Citigroup Inc., the third-biggest U.S. bank, reported a $3.23 billion profit that missed analysts’ estimates as bond trading slumped 26% and U.S. mortgage revenue declined.
Third-quarter net income climbed from $468 million a year earlier, when the bank had a $2.9 billion loss on its brokerage joint venture, and earnings per share rose to $1 from 15 cents, the New York-based bank said today in a statement. Excluding one-time items, profit was $1.02 a share, two cents lower than the average estimate of 26 analysts surveyed by Bloomberg.
Chief Executive Officer Michael Corbat, 53, is eliminating jobs, closing branches and scaling back in some countries to counter weaker revenue from bond trading and a drop in mortgage refinancings. The fixed-income business, which accounted for about 20% of revenue last year, suffered along with home lending on concern the Federal Reserve would reduce monthly debt purchases that drove interest rates near record lows.
“Fixed income, currency and commodities trading is by far the biggest number for all investment banks, including Citi, and that was of course impacted by the seasonality of the quarter and the weakness in September,” Gerard Cassidy, an analyst at RBC Capital Markets, said in an interview on Bloomberg Television.
The shares fell 0.1% to $49.51 at 10:35 a.m. in New York. The stock rose 25% through yesterday, matching the advance for the 24-company KBW Bank Index.
Revenue excluding an accounting adjustment fell 5% from a year earlier to $18.2 billion. Expenses dropped 4% to $11.7 billion, according to the statement. Costs included $677 million for legal matters, a company presentation showed.
“While many of the factors which influence our revenues are not within our full control, we certainly can control our costs,” Corbat said in the statement. “I am pleased with our expense discipline and improved efficiency year-to-date.”
Fixed-income trading revenue excluding an accounting adjustment dropped to $2.78 billion, which compares with estimates of $3.04 billion from Moshe Orenbuch, an analyst at Credit Suisse Group AG, and $2.53 billion predicted by Cassidy at RBC.
The biggest declines came from interest rates and currencies, Chief Financial Officer John Gerspach, 60, said on a conference call with journalists. JPMorgan Chase & Co., the biggest U.S. bank, last week reported an 8% decline in bond trading revenue, to $3.44 billion.
Citigroup’s fixed-income sales and trading division is led by executives including Carey Lathrop, who oversees credit, Andy Morton who manages interest rates and Howard Marsh, head of municipal bonds. Jeffrey Perlowitz and Mark Tsesarsky are co- heads for securitized products, and Anil Prasad runs the currency business.
Revenue from stock trading, a unit run from London by Derek Bandeen, increased 36% from a year earlier to $710 million. Orenbuch estimated $801 million, while Cassidy predicted $848 million.
Fees from investment banking, which includes managing bond and share sales for clients and providing advice on mergers and acquisitions, fell 10% to $839 million. The figure compares with $767 million estimated by Orenbuch and $926 million by Cassidy. Raymond J. McGuire and Tyler Dickson oversee the unit from New York.
Profit at Citigroup’s consumer-banking unit, run by Citigroup co-President Manuel Medina-Mora, fell 23% to $1.62 billion. The unit operates about 4,000 branches across almost 40 countries. U.S. mortgage originations fell to $14.5 billion, the lowest in a year, according to a supplement provided by the bank.
Mortgage refinancings slumped after rates on 30-year loans jumped from historical lows of less than 3.5% earlier this year to an average of 4.32% at the end of September, data compiled by Freddie Mac show. Applications for refinancings, which accounted for 82% of all requests for home loans last year, made up 63% in the third quarter, according to data compiled by the Mortgage Bankers Association.
The bank released $675 million in loan-loss reserves.
Citigroup continued winding down and selling investments in the Citi Holdings unit, which contains a consumer-finance business and billions of dollars of U.S. mortgages. Assets in the division fell 6.9% from the second quarter to $122 billion. Losses at the unit, created in 2009 as a home for the company’s unwanted assets after the financial crisis, narrowed to $104 million from a $570 million loss in the second quarter.
Corbat replaced Vikram Pandit, 56, as CEO in October 2012, after Pandit navigated the bank around a near collapse and repaid a $45 billion U.S. bailout. Since taking over, Corbat has said he would cut 11,000 workers and pull back from consumer banking in markets such as Uruguay, Turkey and Pakistan.
The lender is seeking buyers for 50 Texas branches and plans to sell and lease back an additional 90 in California as it focuses on the biggest urban areas, people with direct knowledge of the moves said in August. Corbat, who previously led the Citi Holdings unit, is looking to cut costs by $900 million this year.
The third-quarter results compared with a $5.58 billion profit reported last week by Wells Fargo & Co., and a $380 million loss for JPMorgan, the first under Chief Executive Officer Jamie Dimon. The New York-based firm took a $7.2 billion charge to cover the cost of mounting litigation and regulatory probes.
Corbat won praise from Sanford “Sandy” Weill, the former chairman and CEO, and Michael Mayo, an analyst at CLSA Ltd. who had spent the past five years telling investors to sell the shares. Weill said in a Sept. 10 interview on CNBC that he’s “finally happy” with management, calling Corbat “terrific.”
In March, the Fed approved Citigroup’s capital plan after the bank outperformed JPMorgan and Goldman Sachs Group Inc. on key measures in an annual stress test of U.S. lenders in a hypothetical slowdown.
“These are the results that will be used in the CCAR stress test in March,” Cassidy said, referring to the Fed’s Comprehensive Capital Analysis and Review tests. “We should see them increase their dividend very sizably in March and also a big buyback,” he said.
Fed Chairman Ben S. Bernanke said May 22 that the central bank may begin slowing, or “tapering,” the $85 billion in monthly bond purchases it has conducted to help boost the economy. The talk led economists to predict the pullback would be announced in September though officials surprised investors by saying Sept. 18 they would maintain purchases.