Citi’s Credit Adjustment Yields 74% Increase in Q3 Earnings

""Citigroup"":http://www.citigroup.com reported Monday that it brought in net income of $3.8 billion during the third quarter of this year. That's up 74 percent from a year earlier and up 13 percent from the previous quarter.
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Third quarter revenues of $20.8 billion ""increased slightly"" from both the prior year and prior quarter, thanks to a $1.9 billion accounting adjustment that allowed Citi to record a gain based on the risk associated with its credit holdings.

Excluding this adjustment, third quarter revenues would have come in 8 percent lower than both the previous year and previous quarter. The accounting move â€" referred to as credit valuation adjustment (CVA) â€" increased third quarter earnings by 39 cents per share to $1.23, beating analysts’ expectations of 82 cents a share.

The New York-based lender said in its earnings presentation to investors that it remains highly focused on

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risk management, particularly as it relates to U.S. mortgage exposure.

CEO Vikram Pandit described the housing market here in the states as an area of concern going forward, with residential mortgage portfolios weighing heavy on business metrics, not just for Citi but for all U.S. banks.

Citi's credit losses dropped more than 41 percent during the third quarter to $4.5 billion, but most of that was attributed to an improvement in defaults related to bank credit cards.

With the decline in credit defaults, Citi released $1.4 billion from its loan loss reserves during the third quarter. That follows a reduction of $1.9 billion during the second quarter of this year.

Citigroup's total allowance for loan losses was $32.1 billion at the end of September, or 5.1 percent of total loans.

The company noted that asset quality continued to improve as total non-accrual assets fell 44 percent from the third quarter of last year to $13.5 billion.

Consumer loans across the company’s business lines that were 90-plus days delinquent fell 39 percent versus the prior year period to $9.3 billion, or 2.3 percent of consumer loans.

Seriously delinquent first mortgages amounted to $3.82 billion, while home equity loans falling into the 90-plus bucket totaled $1.01 billion.

Citi says it has set aside $1.1 billion for possible loan repurchase claims from investors.