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Citigroup Inc's second-quarter profit jumped 24 percent as the bank lost less money than expected on bad U.S. loans.
The third-largest U.S. bank made more loans during the quarter than in the first three months of the year, which could signal future income gains if loan growth continues. The bank's shares were fractionally higher in morning trading.
But in the latest quarter many Citigroup businesses suffered. Income fell in two of its three continuing units -- its commercial and investment banking business and its processing arm.
The third unit, retail banking, posted higher income mainly because it lost less money on bad loans.
"The decline in net credit losses was just a huge improvement. That's really the driver here," said Timothy Ghriskey, co-founder of Solaris Group, which owns Citigroup shares.
The bank's overall credit losses declined 35 percent, allowing it to dip into money previously set aside to cover bad loans by releasing reserves.
The results came a day after JPMorgan Chase & Co posted solid earnings, raising investor hopes for strength across the banking sector.
Citigroup reported net income of $3.34 billion, or $1.09 per share, bettering the 96-cent average estimate of analysts polled by Thomson Reuters I/B/E/S. A year earlier it earned $2.7 billion, or 90 cents per share adjusted for a reverse stock split.
It is the sixth consecutive quarterly profit for Citigroup, which needed $45 billion in government bailouts to survive the financial crisis. Since December, when the U.S. government sold off the last of its common share stake in the bank, Chief Executive Vikram Pandit has been trying to show investors that Citigroup can move beyond recovery to growth.
THE ELUSIVE NEW NORMAL
But boosting business has been difficult this year for most U.S. banks, as weak fixed-income trading and market volatility have weighed heavily on results.
"Like everyone else, what we're looking to determine over the next several quarters is, what is the 'new normal' level for activity," Citigroup Chief Financial Officer John Gerspach said on a conference call with reporters.
"I'm not quite sure that we understand exactly where that is right now," he said in response to a question about possible trading layoffs.
Revenue at Citigroup's securities and banking unit, its commercial and investment bank, fell 8 percent from a year earlier, hurt by an 18 percent decline in fixed-income trading, to $3.033 billion.
That decline was partially offset by big increases in underwriting and merger advisory fees. Revenue for debt underwriting, equity underwriting and merger advisory rose 61 percent to $1.085 billion.
Citigroup said overall quarterly revenue fell almost 7 percent to $20.6 billion but was slightly better than the $19.9 billion expected by analysts.
"They're fixing a lot of their problems, but they're not out of the woods yet," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel.
Citigroup shares were up 25 cents to $39.27 in morning trading after rising as high as $40.38 in early dealings.
(Reporting by Maria Aspan; additional reporting by Joe Rauch in Charlotte and David Henry in New York; editing by John Wallace)