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Citigroup (C) - Get Citigroup Inc. Report reported solid third-quarter results Tuesday, but the nation's largest bank would've missed analysts' estimates had it not been for an unusually large gain on some old Third World bonds.

Citi's operating profits, which exclude restructuring charges, surged 27% from a year ago to $3.11 billion. Revenue jumped an equally remarkable 15% over the same period to total $16.76 billion. On a per-share basis, the bank earned 67 cents in the third quarter, 26% higher than year-ago period's 53 cents and 2 cents better than the

First Call/Thomson Financial

analyst consensus.

But without a $199 million after-tax gain on the sale of

Brady bonds, securities formed out of distressed loans made to emerging nations in the '70s and '80s, Citi's per-share income would've been as much as 4 cents lower.

On a conference call, Citi CEO Sandy Weill explained that the bond gain was booked in the third quarter because it arose from two Brady bond exchanges that were carried out in the period by Brazil and Ecuador. In these exchanges, Brady bond holders get to sell their bonds back to the issuing countries.

Citi stock was down 81 cents, or 1.6%, to $50. Big banks, going by the

KBW Banks Index

, were off 2.65%.

Spoils to the Rich

While some U.S. banks have run into trouble, the nation's largest bank has consistently posted robust earnings since the beginning of 1999, and thus has commanded a rich valuation. The bank trades at 16 times estimated 2001 earnings, compared with nine times for its crosstown rival,


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The Brady profits notwithstanding, Citi's third quarter should keep investors happy.

Citi this year vs. the banks index

Investment banking unit

Salomon Smith Barney

, which contributed nearly a quarter of all Citi's revenues, a far higher share than any other operational line, reported earnings that were up 44% from the year-earlier period. Profits were lifted by strong trading income and record investment banking revenue, which totaled $986 million in the third quarter, up 30% from the year-ago period. Investment banking benefited from Solly's advisory role in a number of large mergers in the quarter, but its third-quarter core income of $622 million ranks only fifth among the last seven quarters.

The North American credit cards division, whose $2.06 billion in revenue made it the second-largest contributor to the overall total, also fared well, posting earnings of $369 million, which is 23% up on the year-ago number. Revenue growth in cards was a sluggish 4%, and operating costs rose, so Citi got its earnings jump from a decline in its loan-loss provision. The reduction is valid, since bad loan losses are falling, says David Berry, head of research at

Keefe Bruyette & Woods

, a New York-based bank stock brokerage. Losses to bad loans totaled 3.5% of loans in the third quarter, down from 4.4% in the year-ago period. (Berry rates Citi a hold and Keefe hasn't done underwriting for the bank.)

Leaps and Bounds

Yearly revenue growth of 5% in Citi's global consumer division, which includes retail banking, consumer finance, credit cards and a range of insurance lines, was markedly slower than the 26% top-line growth achieved by its corporate and investment bank and the 22% tempo for asset management. Citi's consumer top-line growth was dragged down in part by sharply lower revenue from Latin America, Eastern Europe, the Middle East and Africa.

Citi's two corporate banking operations -- Global Relationship Banking, which focuses on companies in developed countries, and Emerging Markets Corporate Banking -- continue to hum, suggesting that the bank's cross-selling efforts are having some success. Global Relationship's earnings soared 75% to $250 million over the year; Emerging Markets' leapt 32%.

Most reassuring, Citi's corporate bank's bad-loan losses in the third quarter totaled only $42 million, the lowest level in two years, according to Keefe's Berry.