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Weak Earnings Reports Continue for Banks: Financial Losers

Stocks in this article: BAC C I:BKX

NEW YORK ( TheStreet) -- Stocks of the nation's largest banks were weak on Tuesday, as investors continued to wait for a deal in Washington and Citigroup (C) continued the weak third-quarter earnings trend.

Citigroup's shares declined 1.5% to close at $48.86, after the company reported third-quarter earnings of $3.2 billion, or $1.00 a share, compared to $4.2 billion or $1.34 a share in the second quarter and $468 million, or 15 cents a share, in the third quarter of 2013. The third-quarter bottom line was boosted by a $500 million recapture of deferred tax assets.

The earnings decline from the second quarter was the main area of concern for investors, since the year-earlier period included $2.9 billion after-tax loss on the valuation of its share of its joint brokerage venture with Morgan Stanley (MS).

Citi's total revenue declined to $18.216 billion in the third quarter from $20.002 billion during the second quarter.

The revenue decline in part reflected a sharp increase in provisions for loan losses in the company's Global Consumer Banking segment, because of "portfolio growth and seasoning as well as specific loan loss reserve builds in Mexico related to Citi's exposure to homebuilders as well as the impact of potential losses related to the recent hurricanes in the region."

On an overall basis, however, Citigroup's credit expenses continued to decline, as its third-quarter provision for credit losses and for benefits and claims totaled $1.959 billion, declining from $2.024 billion the previous quarter and $2.620 billion a year earlier.

Citigroup's third-quarter Securities and Banking revenue totaled $5.081 billion, declining from $6.379 billion the previous quarter and $5.646 billion a year earlier. Many analysts had projected weak third-quarter trading revenue for large-cap banks.

Sterne Agee analyst Todd Hagerman in a note to investors Tuesday morning wrote that "overall, the quarter's results were effectively in line with meaningfully lowered expectations, with weak capital markets offset by improved core expenses and lower credit costs."

Hagerman rates Citi a "buy," with a $61 price target, estimating the company's earnings will increase from $4.78 a share this year to $5.50 in 2014.

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