Citigroup posts biggest quarterly profit of pandemic

New York

CITIGROUP posted its biggest quarterly profit of the pandemic after reaping another windfall from trading bonds and expressing newfound confidence in the resilience of its loan book.

Traders focusing on fixed income, currencies and commodities posted their best third quarter in eight years, while the firm set aside about US$1.5 billion less for bad loans than what analysts had estimated. That helped the bank blunt the impact of regulatory costs and low interest rates.

While the trading boon came from a surge in client activity that has helped Wall Street banks throughout the pandemic, Citigroup's provisions for loan losses marked a shift. After setting aside almost US$15 billion in the year's first half for problem loans, the firm stockpiled only US$2.26 billion in the third quarter - nearly returning to the year-earlier level.

"Credit costs have stabilised," chief executive officer Michael Corbat said in a statement announcing the results on Tuesday. Overall, "we continue to navigate the effects of the Covid-19 pandemic extremely well."

The bank's bond traders boosted revenue 18 per cent from a year earlier to US$3.79 billion, while its stock traders saw a 15 per cent increase to US$875 million - in both cases surpassing analysts' estimates.

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The company had offered relatively little guidance on loan provisions, leaving analysts guessing far too high.

Despite setting aside less in provisions, Citigroup's forecast for unemployment and growth in gross domestic product worsened in the quarter. The bank now expects unemployment to be 6.4 per cent at the end of next year, compared with its previous estimate of 5.9 per cent. It believes GDP is likely to grow only 3.3 per cent next year, versus the 5.5 per cent the bank previously expected.

Total costs were still elevated by a US$400 million fine announced this month by the Office of the Comptroller of the Currency for the bank's failure to fix long-time deficiencies in infrastructure and controls. The sanction - which some analysts anticipated would be booked later - contributed to a 5 per cent jump in expenses to US$11 billion in the third quarter. The bank also entered into two consent orders with regulators that will require years of spending to overhaul its systems.

"We are committed to thoroughly addressing the issues contained in the consent orders," Mr Corbat said in the statement. "These investments will not only further enhance our safety and soundness, they will result in a digital infrastructure that will improve our ability to serve our clients and customers and make us more competitive." BLOOMBERG