* 3rd-qtr adj profit $1.02/shr vs Street view $1.04
* Bond trading revenue falls 26 pct
* Shares fractionally higher at midday
* Citi Holdings losses fall to $104 mln from $3.55 bln
(Writes through with additional comment)
By David Henry
Oct 15 (Reuters) - Citigroup Inc posted
weaker-than-expected third-quarter earnings on Tuesday as weak
bond market trading volume hurt revenue at the No. 3 U.S. bank
and across Wall Street.
Citigroup's bond trading revenue dropped 26 percent, or $956
million, excluding an accounting adjustment, contributing to
earnings that missed analysts' forecasts.
While the drop in fixed-income revenue was more severe than
at larger rival JPMorgan Chase & Co, which reported
earnings last Friday, it could spell trouble for investment
banks Goldman Sachs Group Inc and Morgan Stanley,
which post results later this week.
"Investors should have been expecting this," said Tom
Jalics, senior investment analyst at Key Private Bank. "The
investment bank was a little bit weaker than people had been
expecting, but the company's management had been telegraphing
this for the past 6-8 weeks."
He and other investors pointed to Citi's efforts to control
costs in the third quarter as the most positive part of the
earnings, which were also marked by top-line weakness in retail
banking. Similar moves could be imminent at other banks,
especially as Wall Street bonus season - typically a huge part
of their budgets - approaches.
"Obviously, the top-line growth measures are tough to come
by in this environment, and the one lever management is able to
pull is on the expense side," Jalics said.
In last year's third quarter Citigroup took a pretax charge
of $4.7 billion related to selling its Smith Barney brokerage
business, a charge that ended up costing Vikram Pandit, then the
bank's chief executive, his job.
Pandit's successor, Michael Corbat, has struggled to improve
Citigroup fortunes in an environment where client business is
tepid and new regulations are raising banks' expenses.
'UNEVEN' BUSINESS CONDITIONS
Corbat told analysts in a conference call that business
conditions would remain "uneven" through the rest of the year.
"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," Corbat said in a statement.
The bank's expenses fell nearly $500 million from the second
quarter to $11.7 billion as performance-based compensation and
transaction costs fell, partly reflecting a weak revenue
environment, Chief Financial Officer John Gerspach told
The lender, which has said it was aiming to reduce costs by
$1.2 billion annually, said on Tuesday it plans to cut areas
like marketing expenses in the fourth quarter.
Investors said that from the outside, it is hard to evaluate
how the bank's cost-cutting is affecting its daily operations.
"Everyone knows credit is getting better and the economy
will be what it is, and the question is what can (banks) do on
the cost side," said David Ellison, portfolio manager in Boston
at Hennessy Funds, which has about $4 billion under management
and owns Citigroup shares.
"All these banks are doing a lot on that front, including
Citigroup, but it's hard to see from the outside what is
happening," he added. "There's a dumpster in the driveway, but
all the activity is in the house, and you can't tell what's
CUSTOMER TRADING SLOWDOWN
Customer activity at Citi and other banks fell in the third
quarter after the Federal Reserve refrained from changing its
bond buying program, a decision that took investors by surprise
and led many to take a wait-and-see attitude until there is a
clearer time frame for the end of the central bank's economic
The third quarter is typically a slow one for bond trading,
and this was exacerbated by the Fed announcement, according to
Under generally accepted accounting principles, Citigroup's
net income rose to $3.23 billion, or $1.00 per share, from $468
million, or 15 cents per share, a year earlier.
Excluding the Smith Barney charge, as well as the impact of
tax benefits and changes in the value of Citigroup debts and
those of trading partners, third-quarter earnings slipped to
$3.26 billion, or $1.02 per share, from $3.27 billion, or $1.06
per share, a year earlier. On that basis, revenue fell 5 percent
to $18.22 billion.
Analysts on average expected earnings of $1.04 a share,
according to Thomson Reuters I/B/E/S. A spokeswoman for the bank
said that estimate was comparable to the adjusted earnings of
$1.02 per share.
Citigroup shares were up 14 cents to $49.74 in midday
On some fronts, Corbat is making progress. Citigroup has
winnowed down the assets it is looking to shed, known as Citi
Holdings, to $122 billion, down 29 percent from a year earlier
and down 7 percent from the second quarter. Citi Holdings now
accounts for a little more than 6 percent of the bank's overall
assets, compared with about 9 percent in last year's third
But results were weak at many businesses at Citicorp, the
bank's main operations. Revenue for its retail banking business
fell 7 percent to $9.24 billion, and revenue for its securities
and banking business fell 2 percent to $4.75 billion.
(Reporting by David Henry in New York; Additional reporting by
Tanya Agrawal in Bangalore; Editing by John Wallace)