UPDATE 8-Citi beats forecasts, fueling sector confidence

* Q3 EPS 7 cents vs Street view 6 cents

* Bank ‘fairly confident’ no foreclosure process issues

* Revenue weak on lower fixed-income trading

* Shares close up 5.6 percent, leading bank stocks higher
(Adds detail; updates shares to close)

By Maria Aspan

NEW YORK, Oct 18 (BestGrowthStock) – Citigroup Inc (C.N: ) reported
its third straight quarterly profit, beating forecasts and
boosting optimism that the banking sector is on track to
recover even amid a tepid economic expansion.

Relief about the improving results, bolstered by slowing
credit losses and reduced reserves for bad loans, outweighed
lingering concern about the foreclosure crisis, boosting the
bank’s shares to close up 5.6 percent.

Citigroup, whose problems during the financial crisis were
so severe that it needed three different taxpayer rescues, is
the second of the top banks to beat forecasts. JPMorgan Chase &
Co (JPM.N: ) posted better-than-expected earnings last week. The
No. 1 U.S. bank, Bank of America Corp (BAC.N: ), is due to report
on Tuesday.

The gain in Citigroup shares helped fuel a broader rally in
bank shares and lifted U.S. stock indexes.

“It kind of fits what JPMorgan said on their conference
call, that they expect the (credit) losses to persist but the
worst is behind them,” said Anthony Polini, an analyst with
Raymond James. “But … until we can be more certain about
foreclosure issues etc., these stocks could have a ceiling on
them. “


Take a Look on Citigroup [ID:nN18261690]

Graphic on Citigroup earnings http://r.reuters.com/qus88p

Reuters Insider http://link.reuters.com/qer88p

Reuters Insider http://link.reuters.com/gyt88p

Table of Citigroup’s results [ID:nN18129281]

Breakingviews [ID:nN18265880]


On the mortgage foreclosure front, the bank said it is
looking at the home loans it bundled into bonds and sold to
investors to make sure the paperwork is in order. So far, it
has not found any problems.

Investors in such mortgage bonds may be entitled to sell
bad loans back to banks at face value because of documentation
issues. U.S. banks could be left holding billions of dollars of
bad loans, which could affect profits for years to come.

Citigroup executives repeated their assurances of recent
weeks, saying the bank has intensified its regular reviews of
its foreclosure process and is “fairly confident” its methods
are sound.

Those assurances are “certainly favorable” but “it’s a
little early to start calling who did good and who did bad” in
the foreclosure process, said Michael Nix, co-chief investment
officer of Greenwood Capital Associates.

Citigroup, the third-largest U.S. bank by assets, will be
dealing with mortgage-related losses for some time to come. It
more than tripled its repurchase reserve balance from a year
earlier and now has set aside $950 million to buy back loans
that did not meet the bank’s underwriting standards.


Citigroup’s third-quarter revenue rose slightly from a year
earlier but fell from the second quarter, and the bank dipped
into reserves to cover bad loans. The bank said revenues were
hit by a slump in fixed income trading and losses on credit
derivative hedges.

CEO Vikram Pandit told investors and analysts that the bank
was well on its way to “continued profitability” and could
start returning capital to shareholders as soon as 2012.

Pandit has sold assets, laid off staff and tried to focus
Citigroup on its main businesses, including investment banking
and retail banking for affluent customers globally. The bank is
on track to have less than $400 billion of unwanted assets, or
20 percent of total assets, by the end of 2010.

Citigroup is still 12 percent owned by the U.S. government,
which originally planned to finish selling off the stake by
mid-December. Gerspach said on Monday that the bank expects the
government will try to meet that target.

Like stronger rival JPMorgan, Citigroup beat earnings
expectations in part by releasing money it had set aside to
cover bad loans. [ID:nN11126621]

Analysts, who tend to discount earnings powered by reserve
releases as “low-quality,” have questioned how bank profits can
keep growing if a sluggish economy results in low loan demand
and relatively high credit losses. [ID:nN06286422]

“It’s a problem for all the banks now — they have trouble
raising revenues,” said Matt McCormick, a portfolio manager,
Bahl & Gaynor Investment Counsel Inc.

“Reducing loan loss reserves is not something you can do
indefinitely — eventually, they’ll get to the point where
they’ll say, ‘We can’t keep going down this path.'”


Citigroup’s outstanding loans, after subtracting money set
aside to cover losses, fell 5.5 percent in the quarter as
consumer loans dropped. Corporate loans edged higher.

In North America and Western Europe, “we’re not necessarily
seeing the same shrinkage that we saw in the loan book before,
but it’s not robust growth,” Gerspach said on the media call.

Separately on Monday, Citigroup faced the start of a
high-profile trial in Manhattan federal court. British buyout
firm Terra Firma Capital Partners Ltd [TERA.UL] has sued the
bank over whether a Citigroup banker duped it into overpaying
for the EMI music company. [ID:nN18280854]

Citigroup posted a third-quarter profit (Read more your timing to make a profit.) of $2.2 billion, or
7 cents per share, compared with a year-earlier loss to
shareholders of $3.2 billion, or 27 cents per share.

Analysts on average had expected a profit of 6 cents a
share, according to Thomson Reuters I/B/E/S.

Excluding an $800 million pre-tax loss on the sale of its
student lending operations, Citigroup earned $2.6 billion, or 8
cents per share.

Revenue was $20.7 billion, the lowest figure for any
quarter this year.

Please also see the following links:
Foreclosure mess clouding bank results
Citi, JPMorgan, BofA stock performance
Citi’s rising reserve for put-backs
(Reporting by Maria Aspan; additional reporting by Steve Eder,
Dan Wilchins and Elinor Comlay; editing by John Wallace and
Andre Grenon)

UPDATE 8-Citi beats forecasts, fueling sector confidence