Citigroup Inc. said Monday its third-quarter profit dropped 57 percent after the biggest U.S. bank took a hit of more than $3 billion in mortgage-backed security losses, leveraged debt write-downs, and fixed-income trading losses.
Citigroup, which also boosted loan-loss provisions by $2.24 billion, said net income fell to $2.38 billion, or 47 cents per share, in the July to September period. That's down from $5.51 billion, or $1.10 a share, in the same period a year earlier. Revenue in the quarter rose 6 percent to $22.66 billion from $21.42 billion a year earlier.
The results included a $729 million pretax gain due to the sale of shares of Redecard SA, a company that signs up merchants in Brazil for Mastercard Inc.
Excluding the Redecard gain and acquisitions, Citigroup's revenue fell 3 percent to approximately $20.8 billion. That's below the revenue forecast by Thomson Financial analysts, who predicted earnings of 44 cents a share and revenue of $21.76 billion. Analyst forecasts don't typically include one-time gains.
The results were slightly better than Citigroup previously estimated. On Oct. 1, Citigroup Inc. had warned that its third-quarter profit would fall by about 60 percent.
Citigroup's shares rose in pre-market trading, after closing at $47.87 Friday. It has fallen more than 6 percent since the start of July, and is down more than 12 percent year-to-date.
"This was a disappointing quarter, even in the context of the dislocations in the subprime mortgage and credit markets," said Chairman and Chief Executive Charles Prince in a statement. "A significant amount of our income decline was in our fixed income business, where we have a long track record of strong earnings, and this quarter's performance was well below our expectations."
Last week, the bank combined its investment banking and alternative investments units into one business led by former Morgan Stanley executive Vikram Pandit, who has run Citigroup's alternative investments unit for several months. Tom Maheras, co-CEO of the investment banking unit, and Randy Barker, a co-head of fixed-income trading, left the company.
As in previous quarters, the bank's international businesses performed better than its stateside operations.
Global consumer revenue rose 14 percent, fueled by a 35 percent rise in international consumer revenue, including the Redecard share sale.
U.S. consumer revenue was flat, after a 2 percent decline in U.S. cards; a 7 percent rise in retail operations; a 5 percent increase in consumer lending; and a decline in commercial business.
U.S. markets and banking revenues fell 87 percent, while international revenues rose 7 percent.
Overall, markets and banking revenue fell 24 percent. This is the segment that suffered a $1.35 billion write-down on highly leveraged debt tied to corporate deals; $1.56 billion in losses related to subprime mortgage-backed securities; and $636 million in losses in fixed income credit trading.
In the third quarter, the credit markets froze up as a fear of taking on risky debt swept the globe. The Federal Reserve has lowered interest rates and helped loosen up the markets again, but they are nowhere near as liquid as they were earlier in the year.
According to published reports, Citigroup other big banks are planning support the market for mortgage-backed securities and other investments by jointly creating a fund to buy as much as $100 billion of the debt. An official announcement is expected Monday.
Global wealth management rose 41 percent, fueled largely by a 42 percent increase in international revenues and a 24 percent jump to record revenues at Smith Barney.
Alternative investments fell 63 percent.
Operating expenses rose 22 percent.
Credit costs rose $2.98 billion, after a $780 million increase in credit losses and a charge of $2.24 billion to pad loan loss reserves.