Citi Boosts Earnings, Scales Back Consumer Banking

Citigroup (NYSE:C) said Tuesday its third-quarter earnings climbed 6.6% to beat expectations, and the bank revealed plans to scale back its consumer banking unit by exiting 11 foreign markets.

In a separate announcement, Citigroup disclosed $15 million in fraud at the security unit of its retail business in Mexico, Banamex. The company, which first provided details of the accounting fraud earlier this year, plans to disband Banamex’s security arm.

Citigroup shares rallied 2.2% to $51.02 in recent trading.

The company reported a profit of $3.44 billion, or $1.07 a share, compared to year-ago earnings of $3.23 billion, or $1 a share. Excluding one-time items, adjusted earnings checked in at $1.15 a share, three cents ahead of Wall Street’s consensus estimate.

Revenue grew 9.5% to $19.6 billion, or $19.98 billion on an adjusted basis. Analysts projected $19.05 billion in revenue.

Citigroup got a boost from higher trading revenue, which increased 6.7% year-over-year. J.P. Morgan Chase (NYSE:JPM), the nation’s largest bank, also reported an uptick in trading revenue amid greater market volatility.

Fixed-income trading was up 5% at $2.98 billion. Revenue from equities trading was $763 million, up 14%.

Investment banking revenue improved 32% to $1.25 billion, led by advisory services and equity underwriting.

Like other banks, weaker refinancing activity weighed on Citigroup’s home lending business. Mortgage originations dropped 51% compared to the same period last year but rose 15% versus the second quarter.

Overall, the consumer banking unit booked revenue of $9.64 billion, an increase of 4.4%.

Citigroup detailed plans to close its retail banking arms in Costa Rica, the Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru. The company also intends to exit its consumer finance business in Korea.

The New York-based bank expects to sell all of the businesses by the end of next year. The move will shrink Citigroup’s retail banking business to 24 countries from 35.

In the third quarter, revenue in North America and Europe, the Middle East and Africa rose 14% and 4.2%, respectively. Revenue in Asia was up 8.6%, while Latin America’s results were flat.

Citigroup Chief Financial Officer John Gerspach said the bank’s presence in Mexico remains an important part of the business, despite the accounting fraud at Banamex.

According to Citigroup, the Banamex security unit also provided unauthorized services to outside parties and intercepted telecommunications. The company will replace the unit with its global security business.

Another setback this year came when the Federal Reserve turned down Citigroup’s plans for a dividend increase and share buyback, saying it was unclear how the bank’s global operations would be impacted by another recession.

The company has warned that costs could rise due to preparations for the next round of stress tests. Third-quarter expenses jumped 5.8% to $12.36 billion. Legal costs were up 40%, and expenses tied to cost-cutting moves nearly tripled.

Loan-loss reserve releases narrowed to $552 million from $675 million. Banks unlock reserves when they believe fewer funds will be needed to cover bad loans.

Citigroup said Citi Holdings, which contains businesses that the bank wants to sell, saw an adjusted profit of $272 million compared to a $113 million loss a year earlier. The unit’s assets declined 16%.