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By David Henry and Tanya Agrawal
(Reuters) - Citigroup Inc <C.N> reported a stronger-than expected adjusted quarterly profit as its fixed-income business performed ahead of forecasts, and the bank cleared another hurdle by reaching a $7 billion settlement over its sale of flawed mortgage securities.
The settlement with the Justice Department was more than twice what many analysts had expected earlier this year, but it was less than the $12 billion sought by the government in negotiations with the bank.
Including a charge of $3.8 billion related to the settlement, Citi's second-quarter earnings fell 96 percent to $181 million.
But adjusted net income, which excludes the settlement charge and some changes to the value of the bank's debt, amounted to $3.93 billion, or $1.24 per share, compared with $3.89 billion, or $1.25 per share a year earlier.
Analysts on average had expected earnings of $1.05 per share, according to Thomson Reuters I/B/E/S.
Citigroup's stock was up 3.5 percent at $48.60 in early trading on Monday. The shares rose 1.4 percent premarket after the settlement was announced an hour before the results.
Adjusted revenue from fixed income markets fell 12 percent to $2.9 billion - a much better outcome than the drop of 20-25 percent that Chief Financial Officer John Gerspach had braced the market for in May.
Gerspach, in a media call, attributed better-than-expected performance to eased tensions in Russia and Ukraine during the latter part of the quarter.
Citigroup's fixed-income results are first to be reported by a major U.S. investment bank this quarter and are a pointer to how the others may have fared in that business.
Fixed income trading has slumped amid uncertainty about the global economy, low volatility as interest rates stay low, and new rules imposed by regulators to protect the financial system.
Total profit in Citi's investment banking, capital markets and treasury services businesses fell 16 percent to $4.08 billion.
Adjusted revenue at Citicorp, which houses the bank's main continuing businesses, fell 5 percent to $17.9 billion.
Overall adjusted revenue fell 3 percent to $19.38 billion.
PROFIT FOR CITI HOLDINGS
Citi Holdings, which holds the bank's portfolio of troubled assets left over from the financial crisis, reported its first profit since it was created in the wake of the financial crisis.
The unit had an adjusted profit of $244 million, compared with a loss of $591 million a year earlier.
Citigroup has been trying to reduce expenses at the same time that it has had to spend more to satisfy regulators by upgrading its risk controls and safeguards against money laundering through its accounts.
But overall adjusted expenses fell just 3 percent.
JPMorgan Chase & Co <JPM.N> and Goldman Sachs Group Inc <GS.N> report results on Tuesday, followed by Bank of America Corp <BAC.N> on Wednesday and Morgan Stanley <MS.N> Thursday.
(Reporting by Tanya Agrawal and David Henry; Editing by Ted Kerr)