Citigroup's profit falls less than expected; trading helps

Citigroup Inc beat Wall Street expectations on Friday with a smaller-than-expected drop in second-quarter profit as a rebound in trading activity partly offset the effects of persistently low US interest rates.

Like its rivals, Citigroup saw a spike in trading volumes after Britain voted on June 23 to exit the European Union.

The fourth-largest US bank by assets said earnings, adjusted for counterparty risk, fell 14 per cent to $4 billion in the second quarter, far less than the 25 per cent drop Chief Executive Officer Michael Corbat had warned of early in June.

Earnings per share slid to $1.24 from $1.45 but beat the analysts' average estimate of $1.10, according to Thomson Reuters I/B/E/S.

The outperformance of subdued expectations mirrors that of larger rival JPMorgan Chase & Co, which also beat forecasts with the help of more-robust trading in bonds and currencies.

Citi's shares were up 0.4 percent in early trading after gaining 2.5 per cent on JPMorgan's results on Thursday.

The drop in earnings reflects the struggle of US banks with low US interest rates, which hamper their ability to profit from lending.

After raising rates in December for the first time in almost a decade, the US Federal Reserve was widely expected to do so at least twice again this year. But Wall Street is now uncertain there will be any rate hikes in 2016, especially after Britain's shock vote to leave the European Union.

Citigroup's net interest margin, a key measure of lending profitability, shrank to 2.86 per cent from 2.95 per cent a year earlier.

The bank's bad debt charges fell in the quarter, unlike rival Wells Fargo & Co, which reported a 3.5 per cent fall in quarterly profit on Friday after it set aside more money to cover potential loan losses.

Investing in growth

Despite the headwinds from low US interest rates, Citi is trying to cash in on the strong US economy by overhauling its credit card business, which means it must invest more in marketing.

Corbat is hoping the overhaul will increase revenue and improve shareholders' returns. Citi investors got a boost this year when the bank passed the latest US stress tests after failing twice, enabling Corbat to increase dividends and buybacks.

The most international of the large US banks, Citi's overseas consumer banking business held up well, with a 7 per cent increase in net profit.

In the North American consumer business, however, net income dropped 22 per cent as revenue fell 3 per cent and expenses rose.

Overall, Citi's operating expenses declined 5 per cent to $10.37 billion, helped by a change in foreign exchange rates, but revenue fell more, dropping 8 per cent.

The bank's institutional business, which includes the investment banking division, reported a 2 per cent rise in net income, benefiting from a 14 per cent increase in bond trading.