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Citigroup Asian Bet Pays Off as U.S. Flounders (Update 1)

(Citigroup international story updated with Europe disclosures, management commentary)

NEW YORK ( TheStreet) -- Citigroup's (C - Get Report) international growth story was intact in the third quarter, with the bank continuing to post robust revenue growth in its overseas consumer banking business.

The bank said net income rose to $3.8 billion or $1.23 per share in the third quarter compared to $2.2 billion or 72 cents per share in the year-ago period.Revenues came in at $20.8 billion, up slightly from the year-ago quarter. Excluding the one-time gain from falling value of its own debt, Citigroup reported an earnings per share of 84 cents on revenues of $18.9 billion.

Citigroup has been among the few banks that has shown strong loan growth in an anemic recovery, thanks to its strong presence in Asia and Latin America. That trend continued well into the third quarter, despite concerns that high inflation and macro-economic uncertainties in Europe and U.S. will crimp growth in emerging markets.

International consumer banking revenues in Latin America, Asia and EMEA(Europe, Middle East and Africa) gained 10% to $4.9 billion, from $4.42 billion in the year-ago quarter.

The bank also reported strong double-digit growth in loans, thanks largely to the performance of its international consumer banking operations. End of period loans at Citicorp, the unit which houses its core businesses, grew by 13% to $444 billion. Latin America and Asia each saw double digit growth year-over-year in average loans, average deposits and purchase sales. Sandler O'Neill analysts expected international loans to grow by 3%.

Overall, consumer loans expanded by 6% to $237 billion, while corporate loans surged 21% to $207 billion over the prior year period.

Still, international profit growth lagged that of revenues, with the bank remaining in investment mode in emerging markets. Net income from international consumer banking operations declined 12% to $919 million. Operating expenses increased 12% to $2.9 billion, reflecting ongoing investments and the impact of foreign exchange movements and higher business volumes.

The bank said that the international business in Asia achieved operating leverage one quarter ahead of schedule, with revenues outpacing expenses. Citi's Latin American business remains on track to start paying off in the fourth quarter of 2008.

Profits also declined due to lower releases of reserves of $9 million, down from $440 million in the third quarter of 2010 as credit trends normalize in Asia and other emerging markets. Net credit losses declined 9% to $691 million. "Overall credit quality in international RCB[regional consumer banking] continued to improve as delinquencies in both cards and retail banking were lower across all buckets even as the underlying loan portfolios grew at double digit rates versus the third quarter 2010," the bank said.

"We feel very good about the underlying credit in both regions," said CFO John Gerspach said in a conference call with reporters.
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