Citigroup's Results Climb, Buoyed by Consumer Bank -- 3rd Update

Citigroup Inc. boosted third-quarter profit by slashing expenses, even as it grappled with challenges in its credit-card business.

The bank reported net income of $4.13 billion, up 7.6% from a year ago, while earnings per share rose to $1.42. The per-share figure was up handily from $1.24 a year ago and topped analyst expectations for $1.32 a share. The result beat forecasts even excluding a one-time gain of 13 cents a share from the sale of a business.

Citigroup also said quarterly revenue increased 2.3% from a year ago to $18.17 billion. That surpassed analysts' forecasts for $17.89 billion.

Citigroup has been the best-performing stock among the biggest U.S. banks so far in 2017, thanks in large part to its commitment earlier this year to a plan to return some $60 billion to shareholders by 2020.

But the bank continues to lag behind rivals on some measures, such as return on equity, and its share price remains well below where it once traded before the financial crisis. On Thursday, Citigroup shares fell 2.3% to $73.25 in midday trading.

Citigroup's return on equity was 7.3% in the third quarter, aided by a buyback of more than 200 million shares over the past year.

While up from 6.8% in the prior quarter and a year ago, that return is still far below the 10% level that marks a bank's theoretical cost of capital. Citigroup hasn't topped that hurdle consistently in years.

Revenue climbed most sharply in Citigroup's Wall Street and corporate banking unit, where a jump in investment banking offset a decline in trading revenue.

Institutional banking revenue increased 9% from a year ago to $9.231 billion, offsetting an 11% decline in trading revenue, to $3.63 billion. Trading was hurt by a 16% drop in fixed-income markets, which banks had expected because of low volatility.

The bank also cut costs across the board, posting a 2% decline in expenses from last year to $10.17 billion. When coupled with Citigroup's revenue gain, the bank's efficiency ratio -- a measure of expenses versus total revenue -- fell to 56% from 59% in the prior quarter and a year earlier.

Lower expenses were helped in part by a further decline in the number of branches to 2,474 globally from 2,648 a year ago. The size of the bank's staff also shrank by 3% from a year ago to 213,000.

Citigroup's consumer banking business delivered a mixed performance. Global consumer banking revenue grew 3% from a year ago to $8.43 billion, led by a 10% gain in Mexico and 6% growth across Asia.

North American retail banking revenue, excluding legacy mortgages, rose 12% from a year ago to $1.178 billion. Even as it cuts branches, Citigroup has added more wealth-management services for its upscale customer base.

However, credit cards held the unit back. Revenue from branded cards, which Citigroup markets directly to consumers, declined 1% from a year ago.

Previously, the bank had been suggesting that the second half of 2017 would deliver growth in cards after years of investments, such as paying to take on the card business of Costco Wholesale Corp.

"As late as June, we believed that we'd be able to deliver some year-over-year revenue growth," Chief Financial Officer John Gerspach told analysts on Thursday. But he added that the bank was seeing tough competition in cards, where banks have been offering increasingly generous inducements.

Mr. Gerspach said he still expected the bank's newest products, such as the Costco cards, to eventually deliver healthy growth. "In trying to build this balance portfolio, we're going to need to make adjustments as we go along," he added.

Citigroup also said it added $50 million in reserves for card-loan losses related to recent hurricanes and $300 million for what it described as a sooner-than-expected uptick in loan losses next year.

Those moves helped dampen profit in consumer banking overall, which was down by 6% from a year ago.

The bank's overall portfolio of loans grew 2% from a year ago, including a strong 6% gain in corporate loans. And the interest-rate environment is still a challenge. Citigroup's net interest margin, or a measure of how much it makes from borrowing and lending money, fell to 2.72% from 2.86% a year ago.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

October 12, 2017 12:42 ET (16:42 GMT)