Corrected - Citi posts highest quarterly profit in 8 years as costs plunge

(Corrects 9th paragraph description of rates and currencies revenue trend.)

By David Henry and Anil D'Silva

REUTERS - Citigroup Inc reported its highest quarterly profit in nearly eight years as costs plunged, showing that the bank's efforts to streamline its business may be starting to pay off.

Citi has been slowly getting its house in order by cutting costs and shedding assets that are not critical to its main businesses. It has sold retail operations in many countries and shrunk its U.S. branch network.

Shares of the third biggest U.S. bank by assets rose 2.3 percent to $54.45 on Thursday.

Citi's operating expenses fell 10 percent to $10.88 billion in the first quarter ended March 31 as it spent less on employee compensation and advertising and marketing.

The bank reached its target of having operating expenses of about 55 percent of revenue, Chief Financial Officer John Gerspach said on a call.

Legal and restructuring costs fell to $403 million from $1.16 billion.

Revenue from investment banking, which is part of Citi's institutional clients group, rose 14 percent to about $1.20 billion.

However, overall revenue in the institutional clients group fell 1 percent to $9.03 billion, hurt by lower fixed income trading revenue.

Gerspach said that without losses from Swiss currency trading, Citigroup's rates and currencies revenue would have been up by more than 20 percent from a year earlier. He, however, declined to give a dollar figure.

Revenue in Citi's global consumer banking business fell 2 percent to $8.66 billion.

The bank has exited or is exiting consumer businesses in countries including Japan, Turkey, Czech Republic and Hungary.

Corbat aims to use Citi's streamlined structure to return more capital to shareholders. He made progress toward that goal in March when the Federal Reserve approved his plans to raise dividends and buy back shares.

Citi's return on assets was 1.05 percent, higher than Corbat's target of at least 0.9 percent for the year.

The bank's tier-1 common equity capital ratio rose to 11 percent from 10.6 percent in the fourth quarter as it used $1.2 billion of deferred tax assets, in line with its expectation of utilizing about $4 billion annually.

Adjusted net income rose 16 percent to $4.82 billion, or $1.52 per share, beating average analyst estimate of $1.39 per share, according to Thomson Reuters I/B/E/S.

Adjusted revenue fell 2 percent to $19.81 billion.

Fixed income trading revenue declined 11 percent to $3.48 billion. In contrast, Goldman Sachs Group Inc and JPMorgan Chase & Co reported higher revenue from fixed income trading.

(Editing by Kirti Pandey)