NEW YORK – Citigroup Inc. (C) Monday reported a 35 percent rise in third-quarter profit on the sale of an insurance unit, and said higher investment banking revenue offset weakness in consumer banking and the impact of Hurricane Katrina.
Net income for the world's largest bank increased to $7.14 billion, or $1.38 per share, from $5.31 billion, or $1.02 per share, a year earlier. The results included a $2.12 billion gain from the sale of Travelers Life & Annuity (search) to MetLife Inc. (MET) and $222 million of costs from Katrina.
"A key thing investors wanted to see was strength in corporate and investment banking, and we got that," said Steve Roukis, a managing director at Matrix Asset Advisors Inc. in New York, which owns Citigroup shares.
"The big negative is their retail franchise was weak, hurt by contracting net interest margin," Roukis said.
Income from continuing operations, which excludes the 41 cent per share gain from the Travelers sale, was $4.99 billion, or 97 cents per share, below the average analysts' estimate of 98 cents. If Katrina's 4 cent per share impact were also excluded, profit would have been $1.01 per share.
Roukis called Katrina "a one-time event but part of doing business, so if you split the difference, (profit per share) is 99 cents."
Citigroup shares were off 1 cent to $45.03 on the New York Stock Exchange.
Revenue rose 15 percent to $21.5 billion, topping forecasts for $21.2 billion. Expenses rose 12 percent to $11.4 billion. Return on invested capital rose to 25 percent from 21 percent.
A 35 percent increase in corporate and investment banking revenue to $6.43 billion helped offset slowing growth in consumer banking. The failure of long-term interest rates to follow short-term rates higher crimped lending margins, and a jump in bankruptcy filings increased credit costs.
"We've had softer revenue growth in North America than we want," Chief Executive Charles Prince (search) said on a conference call. "I expect we're going to do a better job."
In August, Prince split the consumer bank into North American and international units. His consumer banking chief, Marjorie Magner, resigned a month after Chief Operating Officer Robert Willumstad quit.
Prince, a lawyer, has sold insurance and asset management businesses and strengthened company ethics to revive Citigroup shares.
Through Friday, Citigroup shares had fallen 7 percent this year. In the two years since Prince became chief executive, the shares had fallen 1 percent, while the Philadelphia KBW Bank Index had risen 8.5 percent.
"Investors look at Citigroup shares as reflective of less than the sum of its parts," said Tim Woolston, who helps invest $3 billion at Boston Advisors Inc. and owns Citigroup shares.
Citigroup is "on track" to complete its five-point ethics and governance plan by year end, Prince said. The Federal Reserve (search) urged the bank to improve ethics before resuming big acquisitions.
Consumer banking profit fell 13 percent to $2.72 billion, as revenue rose 4 percent to $12.3 billion. Profit fell 13 percent in retail banking, 7 percent in cards and 23 percent in consumer finance. North American card revenue fell 2 percent.
A jump in bankruptcy filings cut into profit by $124 million, or 2 cents per share. This month's filing surge, ahead of laws that took effect Monday, will cut into fourth-quarter results by "more than two and one-half times that," or $310 million, Chief Financial Officer Sallie Krawcheck (search) said.
Investment banking profit rose 24 percent to $1.8 billion, including gains of 23 percent in capital markets and banking and 14 percent in transaction services.
Profit nearly tripled to $339 million in alternative investments and fell 8 percent to $306 million in wealth management. Assets rose 2 percent to $1.47 trillion.