INSTANT VIEW: Citigroup posts profit on one-time gain

NEW YORK (Reuters) - Citigroup Inc, the embattled banking giant scrambling to survive the financial crisis, reported a second-quarter profit driven by gains on its Smith Barney deal but its primary banking businesses continue to suffer rising credit losses.

The No. 3 U.S. bank, propped up with $45 billion of taxpayer money, recorded an $11.1 billion pretax gain from merging Smith Barney into a brokerage venture with Morgan Stanley.

That gain helped Citi swing to a profit of $4.28 billion, or 49 cents a share, from a year-ago loss of $2.5 billion, or 55 cents a share.

Stripping out the one-time gain from the brokerage venture, Citigroup had a loss of 62 cents a share, wider than analysts' consensus forecast of a loss of 31 cents, according to Reuters Estimates.

The following is reaction from industry analysts and investors:

BILL FITZPATRICK, ANALYST, OPTIQUE CAPITAL MANAGEMENT INC, MILWAUKEE

"The headline number looked great. The bank had very strong capital markets results, but increased credit losses in retail banking.

The government ownership stake in Citigroup puts them at a disadvantage and backs them into a corner. It makes it harder to attract talent and win market share when you have Uncle Sam looking over your back."

WALTER TODD, PORTFOLIO MANAGER, GREENWOOD CAPITAL ASSOCIATES, SOUTH CAROLINA

"It is hard to say whether they've completely turned the corner, but they are heading in that direction. Part of that is the economy bottoming out and part of that is actions they have taken internally. I think they are more dependent on the macro situation continuing to improve."

"For both Bank of America and Citi, it is kind of a mixed bag. They both seem to reserve a lot for credit losses in all parts of the business. That's the bad news. The good news is the bank earnings looked really strong, which should be the case." (Reporting by Steve Eder and Jonathan Stempel)