Citigroup Says it Doesn't Hold Treasuries Due on Oct 31

NEW YORK (TheStreet) --Citigroup said on Tuesday it no longer holds Treasury securities with a maturity date of October 31 or earlier, when a possible standoff on raising the federal debt ceiling risks plunging the United States government into a state of default.

The comments, made by Citigroup CFO John Gerspach on a Tuesday morning conference call with the media, indicate that large financial market dealers are continuing to prepare contingencies to insulate themselves from a short-term debt default by the U.S. Treasury.

Already, investment managers such as Fidelity and Reich & Tang have said they no longer hold Treasuries of a similar maturity. Citigroup, however, is among the biggest holders of Treasuries in the financial sector. It also is a primary dealer of new government debt issuance, including a worse-than-expected auction of one-month bills last week that caused the U.S. Treasury yield curve to invert through about mid-2015.

Gerspach did say that while the bank is managing its Treasury holdings to reflect the risks raised by an impasse in Washington, he still expects that the government won't default on its obligations.

On Tuesday, Citigroup reported a worse-than-expected third-quarter profit as declining revenue was only partially offset by improvements in credit quality and expense reduction.

The third-largest bank reported quarter net income of $3.2 billion, or $1 a share, compared to $4.2 billion or $1.34 a share in the second quarter and $468 million, or 15 cents a share, a year earlier.

Revenue came in at $17.9 billion, down 13% from the second quarter and 30% from the year-ago quarter.

Third-quarter earnings included a $336 million accounting loss due to the fluctuations in the valuation of Citigroup bonds, compared with a loss of $776 million in the prior year. It also included a tax benefit of $582 million. The year-ago quarter included, among other one-off items, a $4.7 billion pretax loss from the sale of a stake in the Morgan Stanley Smith Barney joint venture.

Adjusted for these non-recurring items, the bank reported third-quarter earnings of $1.02 a share on revenue of $18.2 billion, down from $1.06 a share on revenue of $19.4 billion a year earlier.

Analysts were expecting the bank to report earnings of $1.04 a share on revenue of $18.615 billion. Most analysts exclude CVA/DVA gains and losses from their core earnings estimates.

Shares of Citigroup were losing nearly 1% in pre-market trading.

"We performed relatively well in this challenging, uneven macro environment," CEO Mike Corbat said in a statement. "While many of the factors which influence our revenues are not within our full control, we certainly can control our costs and I am pleased with our expense discipline and improved efficiency year-to-date."

The bank continued to reduce its non-core assets with Citi Holdings constituting only 6% of its balance sheet, down from 7% in the second quarter.

Corbat also pointed to improving capital metrics, with Basel III Tier I Common ratio standing at 10.4% and supplementary leverage ratio increasing to an estimated 5.1%.

-- Written by Antoine Gara and Shanthi Bharatwaj in New York.