Citigroup Earns $101M After Dip in Losses on Toxic Loans

Citigroup said Thursday that it earned $101 million between July and September, scratching out a profit thanks in part to smaller reported losses on its massive holdings of troubled loans and investments.

The struggling New York company, which now counts the federal government as its largest shareholder, narrowly achieved its primary goal of remaining in the black for the third straight quarter.

As rivals including J.P. Morgan Chase and Goldman Sachs post massive profits, benefiting from the government's efforts to revive Wall Street, Citigroup continues to pursue smaller victories. The company is trying to shed its involvement in high-risk consumer lending, and its vast store of losing investments.

Citigroup's results amounted to a loss of 27 cents per share of common stock, in part because it was required to pay more than the amount of its profits as a dividend to preferred shareholders. The results compared with a loss of $2.8 billion, or 61 cents a share, during the same period last year.

"Sustainable profitability remains our primary goal in the near term," chief executive Vikram Pandit said in a statement.

Citigroup's shares at noon were down 5 percent to $4.74, as financial stocks generally struggled. The broader market was sagging slightly after Wednesday's elation; the Dow Jones Industrial Average remained slightly above 10,000.

Citigroup has taken more federal aid than any other bank. The company received a total of $45 billion in direct investments from the Treasury Department. It has borrowed billions more with help from the Federal Deposit Insurance Corp., and it has tapped the various emergency aid programs operated by the Federal Reserve.

This summer, the company sold a 34 percent stake to the federal government.

Citigroup was once the nation's largest bank, but it now hopes to return to health by selling vast chunks of its empire. The company's retail brokerage already is gone. It hopes to sell its consumer lending business, CitiFinancial, as well. The goal is to focus on the company's core business of offering banking services to international corporations, along with retail banking operations in nations including the United States and Mexico.

"We're the world's most global bank," Pandit told analysts on a conference call Thursday morning. "We offer services that our peers just can't offer."

But Citigroup first must escape its legacy as one of the world's largest subprime lenders and investors, which has saddled it with billions of dollars in mortgage, credit card and other loans that are no longer being repaid. The company recorded a loss of $8 billion in the third quarter for loans it no longer has any hope of collecting. It also increased its reserve against expected losses by $800 million to $36.4 billion, equal to 5.9 percent of its outstanding loans.

"U.S. consumer credit remains the number one issue affecting our results," Pandit said.

Both drains on revenues were slightly smaller than in the second quarter, but analysts said it was too early to conclude that the company's losses had bottomed out.

"These portfolios are continuing to bleed profits and we see no signs that the flow is slowing," Bart Narter, a banking analyst for Celent, wrote in a morning note on the earnings report.

The company overcame the massive losses in varied fashion. Its retail bank, which operates mostly outside the United States, posted a modest profit thanks to better economic conditions in other countries. As with other major American banks, Citigroup reported strong profits from its Wall Street activities, and from providing banking services to corporations.

The company also relied on a number of extraordinary measures that it cannot repeat, including the sale of profitable business units, investing revenues in countries with lower tax rates, and persuading preferred shareholders to accept common shares of stock in lieu of dividends and eventual repayment.