Citigroup sees profits boosted as losses on bad loans keep falling

CitiGROUP, the third largest US bank, yesterday reported stronger-than-expected quarterly profits as losses on bad loans slowed.

The group made some $2.2 billion (1.4bn) between July and September, ahead of Wall Street forecasts and much higher than the $101 million profit banked a year ago

Although revenues for the third quarter were down by almost 6 per cent at $20.7bn, the group's bad loan provisions of $5.9bn were the lowest since the second quarter of 2007, prior to the financial crisis.

Losses from bad loans fell by 30 per cent during the latest quarter, as the level of defaults in Citi's credit card and property divisions eased.

Like rival JPMorgan, the bank beat profit 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.

Matt McCormick at US investment advisor Bahl & Gaynor Investment Counsel said: "It's a problem for all the banks now - they have trouble raising revenues. Reducing loan loss reserves is not something you can do indefinitely - they'll get to the point where they'll say, 'We can't keep going down this path.'"

Citigroup, 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.