Citi profits tumble as execs scramble

Bank offers up details behind 57 percent quarterly plunge in profits, citing subprime crisis as partly to blame, while execs pledge reforms are underway.

By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Citigroup Inc. revealed Monday the big earnings decline that Wall Street had been bracing for, while executives mustered up a cautiously optimistic view on the company's future performance.

New York-based Citigroup said its net income fell 57 percent to $2.38 billion, or 47 cents a share, during the third quarter, down from $5.5 billion or $1.10 a share a year earlier.

Charles Prince deflected criticism about his leadership abilities Monday after the company reported a steep drop in quarterly results.
Charles Prince deflected criticism about his leadership abilities Monday after the company reported a steep drop in quarterly results.

Analysts were widely expecting the banking giant to report net income of 44 cents per share.

Quarterly revenue also came in narrowly better-than expected, rising 6 percent to $22.7 billion from $21.4 billion a year earlier.

Citigroup (Charts, Fortune 500) shares lost 2.7 percent in midday trade Monday on the New York Stock Exchange.

Citigroup chairman and CEO Charles Prince characterized the quarter as "disappointing."

"I would say this quarter's performance was well below our expectations and frankly surprising," Prince said during a conference call following the release of the results. "We are working very hard on the areas that need improvement."

Citigroup is among a handful of banks that have been hard hit by this summer's subprime mortgage crisis. Three other banks - JPMorgan Chase (Charts, Fortune 500), Washington Mutual (Charts, Fortune 500) and Bank of America (Charts, Fortune 500) - are scheduled to report quarterly results this week.

Citi's earnings came as the bank, along with JPMorgan and Bank of America, said Monday they would head up a rescue fund that will buy debt from so-called structured investment vehicles to prevent a fire sale of assets.

Prince had warned investors two weeks ago that Citi would take a big hit during the quarter. It announced $3 billion in writedowns because of bad subprime bets and tighter credit market conditions. To date, Citi has revealed losses totaling just under $6 billion, including $3 billion for defaulted loan provisions.

Hardest hit were the company's markets and banking and alternative investments divisions, which saw their revenue tumble 24 percent and 63 percent, respectively.

In an attempt to get ahead of possible investor criticism, Citi announced Friday that it would combine the two units, which resulted in the dismissal of the co-CEO of its investment banking unit and the appointment of former Morgan Stanley (Charts, Fortune 500) exec Vikram Pandit to oversee the new division.

"The board feels comfortable with the level at which we've made the changes," CEO Prince said during the conference call.

Prince, who has faced plenty of criticism from investors recently over the company's performance and its lagging stock price, declined to address his own future.

Prince and Gary Crittenden, Citigroup's chief financial officer, said the company was also diversifying into more successful areas of its business and trimming its exposure to risky debt products, as it faces a "deteriorating credit environment."

Crittenden said that the demand for some of the debt that Citigroup peddled before this summer's credit crisis, such as asset-back commercial paper, is picking up. Other fixed-income securities such as collateralized debt obligations - pools of bond securities - may never recover, he said.

"We are not optimistic they will regain a foothold in the market," said Crittenden.

Some areas of the company showed signs of significant growth during the recent quarter. Citigroup's global wealth management division reported revenue of $2.48 billion, a 41 percent jump over the year-ago period.

Citigroup's earnings were "in line with what they pretty much said," said Jaime Peters, an equity analyst with Morningstar. "The global business is still going strong, but it's the credit losses that are dragging down the results."

The bank's closely-watched global consumer group, which includes its credit card, lending and consumer banking divisions, saw its overall revenue climb 14 percent during the quarter due to international growth, although its domestic revenues were flat, hurt by a decline in commercial lending. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.