Citigroup Cautious on U.S. Economy, Housing

Update 2 includes additional information, management comments throughout.

  • Citigroup reports third-quarter profit of 15 cents per share.
  • Excluding items, operating profit was at $1.06 per share, beating the consensus estimate of 96 cents.
  • Net revenue came in at $19.4 billion, excluding CVA/DVA.
  • Estimated Basel III Tier I Capital Ratio improved to 8.6%

NEW YORK ( TheStreet) -- Citigroup ( C) beat expectations in the third quarter, helped by stronger-than-expected trading revenues, a tax benefit, and a $1.5 billion reserve releases.

But the bank appears cautious on the economy, with management citing concerns about the fiscal cliff and its impact on job growth in a media conference call.

The third largest U.S. bank reported a profit of $468 million for the quarter on sales of $14 billion. The results include a $2.9 billion loss related to a write-down of the bank's 49% stake in Morgan Stanley Smith Barney joint venture and a $776 million accounting loss from the revaluation of the firm's debt(CVA/DVA), partially offset by a tax gain of $582 million.

Excluding these items, Citi reported a third-quarter operating profit of $3.3 billion or $1.06 per share. Adjusted revenues came in at $19.4 billion. Analysts expected an operating profit of 96 cents per share in the third quarter on revenues of $18.707 billion, according to consensus estimates from Thomson Reuters.

In the second quarter of 2012, the bank reported an operating profit of $3.1 billion or $1 per share on revenues of $18.8 billion, excluding extraordinary items. And in the year-ago quarter, Citi reported an operating profit of 84 cents on revenues of $18.9 billion, excluding CVA/DVA.

"Our core businesses showed momentum during the quarter as we increased lending and generated higher operating revenues," said Citigroup CEO Vikram Pandit. "For the third straight quarter, we had positive operating leverage in each of our three core businesses. Citigroup in total also had positive operating leverage as Citi Holdings had a smaller impact on our overall results."

Revenue at Citicorp, excluding CVA/DVA, grew 5% year-on-year to $18.4 billion on strength in trading and investment banking. Operating expenses declined 2%, while credit costs also declined 14%. Excluding items, profits grew 20% to $4.6 billion at Citicorp.

The contribution of Citi Holdings, the bank's non-core wing, continued to shrink, representing 5% of revenues excluding the loss on MSSB and CVA/DVA. Citi Holdings now accounts for 9% of total assets at the bank.

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