Citigroup reported a better-than-expected quarterly profit on Monday as credit losses slowed and the bank set aside much less money to cover bad loans.
Analysts said the results were mixed. Revenue rose slightly from a year earlier but fell from the second quarter, and the bank dipped into reserves to cover bad loans. Investors expressed concerns about how a widening foreclosure crisis could affect the bank's earnings.
"Earnings are OK and revenues are light, but the key will be their comments on foreclosures," said Michael Holland of Holland & Co in New York.
In the past month, US government officials have launched probes into the banking industry's foreclosure practices following allegations that thousands of home foreclosures may have been illegal because they were improperly documented.
Citigroup has repeatedly said its document review process is sound, and it has declined to follow large rivals, including Bank of America Corp and JPMorgan Chase and Co, in suspending foreclosures.
Like stronger competitor JPMorgan, Citigroup beat third-quarter earnings expectations in part by releasing money it had set aside to cover bad loans.
Analysts, who tend to discount earnings powered by reserve releases as "low-quality," have questioned how bank profits can keep growing if a sluggish economy results in low loan demand and relatively high credit losses.
"It's a problem for all the banks now – they have trouble raising revenues," said Matt McCormick, portfolio manager, Bahl & Gaynor Investment Counsel Inc.
"Reducing loan loss reserves is not something you can do indefinitely – eventually, they'll get to the point where they'll say, 'We can't keep going down this path.'"
The third-largest U.S. bank by assets posted a third-quarter profit of $2.2bn (£1.4bn), or seven cents per share, compared with a year-earlier loss to shareholders of $3.2bn, or 27 cents per share.
On an ongoing basis, excluding an $800m pre-tax loss on the sale of its student lending operations, Citigroup earned $2.6bn, or eight cents per share.
Revenue was the lowest of any quarter this year at $20.7bn.
Citigroup, which is still 12 per cent owned by the US government, has recovered from the worst of the losses that forced it to take three bailouts in 2008 and 2009. But like its rivals, it has struggled to make new loans this year.
City A.M. Reporter