Third-quarter net income climbed from $468 million a year earlier, when the bank posted 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, two cents lower than the average estimate of 26 analysts surveyed by Bloomberg.
CEO Michael Corbat 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.
"July and August were very slow months as investors sat on the sidelines waiting for more clarity on Fed tapering, Syria and the EM slowdown," Richard Staite, a London-based analyst at Atlantic Equities LLP, wrote in a Sept. 23 note, referring to emerging markets. Staite assigns an overweight rating to Citigroup's shares and predicts the stock will reach $59 within the next 12 months, compared with $49.60 at the close yesterday.
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 Gerard Cassidy at RBC Capital Markets.
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.
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, 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.
Corbat replaced Vikram Pandit as CEO on Oct. 16, 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 a unit disposing of the firm's unwanted assets, is looking to cut costs by $900 million this year.
Citigroup shares climbed 25% this year, matching the gain for the 24-firm KBW Bank Index.
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 Chase & Co., the first under CEO Jamie Dimon. The New York-based firm, ranked first by assets among U.S. lenders, 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.
Fed chairman Ben 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.