REUTERS - Citigroup Inc said it would pull out of consumer banking in 11 markets, including Japan and Egypt, as the U.S. bank with the biggest international business looks to cut persistently high costs.
In the first three quarters of 2014, the bank’s operating expenses rose 11 percent, while revenue was up just 1 percent.
Even with rising costs in the third quarter, the bank managed to post better-than-expected profit, which lifted its shares as much as 3.5 percent on Tuesday.
Expenses in Citigroup’s main businesses rose 11 percent in the third quarter, while revenue rose 8 percent, underscoring the work the bank still has to do to contain costs.
Much of the higher expenses in the quarter was due to funds it had to set aside for legal settlements.
Chief Finance Officer John Gerspach said on a conference call that he expects legal costs to remain elevated in the fourth quarter.
Citigroup said it would exit consumer operations in Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru, as well as the consumer finance business in Korea. It will continue to serve institutional clients in these markets.
In December 2012, Citigroup said it was withdrawing from consumer banking in five countries - Pakistan, Paraguay, Romania, Turkey and Uruguay.
The latest exits will bring down to 24 the number of countries where Citigroup has consumer banking operations.
Chief Executive Michael Corbat is trying to restructure many of Citigroup’s operations to match rivals’ standards for operating efficiency and profitability.
At a meeting with 300 Citigroup executives in February, Corbat stressed on the need to focus on expenses and efficiency this year.
The bank had been bedeviled with high costs for a decade, mostly related to the integration of businesses built up over years of acquisitions.
It now faces rising costs to comply with a welter of new laws and regulations following the financial crisis.
Operating in so many countries adds to those costs, as it complies with local rules in addition to U.S. regulations.
The bank’s broad geographic reach also makes it harder to monitor its many units. Citigroup said on Tuesday it uncovered a $15 million fraud at its Mexican unit Banamex, related to a private security services company the bank operated.
Citigroup’s shares were up 2.8 percent at $51.28 in midday trading on the New York Stock Exchange.
Cumulative revenue from the 11 markets the bank is exiting was $1.6 billion in the last 12 months, while net income was only $34 million with a 0.11 percent return on assets.
Chief Financial Officer John Gerspach said in a conference call with reporters that the low returns did not make the businesses worthwhile.
Citi agreed in June to sell its retail banking and credit card business in Spain to Banco Popular.
Adjusted net profit for the quarter rose to $3.67 billion, or $1.15 per share, from $3.26 billion, or $1.02 per share, a year earlier, helped by better results from its portfolio of troubled assets left over from the financial crisis.
Analysts had expected earnings of $1.12 per share, according to Thomson Reuters I/B/E/S.
Adjusted revenue increased 10 percent from a year earlier to $20 billion as fixed income trading business improved.
Overall expenses rose 6 percent at Citigroup. Costs at its main continuing businesses, known as “Citicorp,” rose 11 percent to $11.46 billion.
Citi Holdings, the division that holds the bank’s portfolio of troubled assets, reported adjusted net income of $272 million compared with a loss of $113 million a year earlier.
Citi was one of the three big U.S. banks reporting on Tuesday.
JPMorgan Chase & Co reported a third-quarter profit as the biggest U.S. bank boosted revenue from trading and investment banking.
Wells Fargo & Co, the fourth-largest, reported a 1.7 percent rise in third-quarter profit as its mortgage business became less of a drag.
Reporting by David Henry and Anil D'Silva; additional reporting by Neha Dimri; Editing by Saumyadeb Chakrabarty