Citigroup tops Wall St view

NEW YORK (Reuters) - Citigroup Inc. (C.N), the largest U.S. bank, said on Friday that strong international and investment banking growth fueled a higher-than-expected 18 percent increase in quarterly profit.

Revenue rose faster than expenses for a second consecutive quarter. Credit losses soared, but were in line with increases at other banks. Nearly half of profit and revenue came from international operations.

Chief Executive Charles Prince has been under pressure from many shareholders to keep costs down amid disappointment with the bank's share price. "I am more and more confident of the path we're on," Prince said on a conference call.

Citigroup shares nevertheless fell, amid concern about the bank's exposure to riskier corporate loans.

Second-quarter net income rose to $6.23 billion, or $1.24 per share, from $5.27 billion, or $1.05, a year earlier.

Revenue jumped 20 percent to $26.63 billion, while operating expenses rose 16 percent. Excluding acquisitions, revenue increased 16 percent, while costs rose 12 percent.

Profit excluding items totaled $1.18 per share, according to Reuters Estimates, 5 cents above the average Wall Street forecast. The average revenue estimate was $24.88 billion. Return on equity rose to 20.1 percent from 18.6 percent.

SHARES FALL

Citigroup said it has cut one-third of the 17,000 jobs it planned to eliminate in a cost-cutting plan announced in April.

"You've got to think this buys Chuck Prince more time," said Lee Delaporte, a portfolio manager at Dreman Value Management LLC in Jersey City, New Jersey, which invests $22 billion and owns Citigroup stock. "They're showing improvements not just on the expense side, but on the revenue side."

Citigroup nevertheless said revenue was hurt because it was stuck at the end of June with four leveraged "bridge" loans, often used in corporate acquisitions, on its balance sheet. This occurred as investors grew more leery of buying riskier debt.

In an interview, Chief Financial Officer Gary Crittenden said "it's likely, given market conditions, we're going to have to change some of the terms" on other offerings this quarter. Asked on the conference call if the revenue impact in the third quarter could be larger, he said, "yes, yes, it certainly could."

Citigroup shares were down 88 cents, or 1.7 percent, to $50.25 in early afternoon trading on the New York Stock Exchange. At other large U.S. banks, quarterly profit rose 5 percent at No. 2 Bank of America Corp (BAC.N) and 20 percent at No. 3 JPMorgan Chase & Co (JPM.N).

INTERNATIONAL, INVESTMENT BANKING SURGE

International profit rose 35 percent to $3.04 billion, while revenue increased 34 percent to $12.56 billion, representing 49 percent and 47 percent of overall totals.

Prince wants to generate 60 percent of business outside the United States, and said he has announced 10 international acquisitions since October.

"There's more risk, especially in less developed countries, but there's also rapid growth," said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York.

Credit costs rose $934 million, including an increase of $259 million in net credit losses and a $465 million charge to boost loss reserves. The bank set aside $2.52 billion for loan losses, up 75 percent from a year earlier. That compares with an 80 percent increase at Bank of America and a tripling at JPMorgan.

Corporate and investment banking profit surged 64 percent to $2.83 billion, as revenue increased 33 percent to $8.96 billion. Revenue rose 24 percent in fixed income markets, 67 percent in equity markets and 28 percent in investment banking.

Profit in consumer banking, Citigroup's largest business, fell 15 percent to $2.7 billion. Revenue increased 8 percent to $13.66 billion, but just 3 percent in the United States.

Wealth management profit, including the Smith Barney brokerage and private bank, rose 48 percent to $514 million. Alternative investments profit rose 77 percent to $456 million.

Citigroup ended June with $2.22 trillion in assets. Through Thursday, its shares had fallen 8 percent this year, twice the decline in the Philadelphia KBW Bank Index .BKX.

(Additional reporting by Dan Wilchins)