Mortgage - Home Loan, Commercial Loan

NEW YORK (AFP) - Mortgage woes and big loan write-downs took a dramatic toll on Citigroup’s third quarter profits, but America’s largest banking group on Monday still reported a net profit of 2.4 billion dollars.

Citigroup said its earnings per share plummeted to 47 cents compared with 1.10 dollars during the same period of 2006. Top executives had warned earlier this month that quarterly profits would be harmed by soured mortgage investments.

Most analysts had only expected Citigroup to unveil earnings of 44 cents per share, but a profitable sale of shares in Brazilian finance firm Redecard helped offset its ailing mortgage investments.

Overall profit nonetheless declined by 57 percent from the same period a year ago. Revenues rose six percent to 22.7 billion dollars.

“This was a disappointing quarter, even in the context of the dislocations in the subprime mortgage and credit markets,” said Citigroup chairman and chief executive officer Charles Prince.

Citigroup and rival Wall Street banks have seen their earnings ravaged by exposure to sub-prime mortgages, or home loans granted to Americans with patchy credit records. Mounting home foreclosures have played havoc with such mortgages.

Its earnings momentum for the July-September quarter was also blunted by increased credit losses and trading setbacks.

Citigroup revealed pre-tax losses of 1.56 billion dollars from bets it made on mortgage-backed securities and other loan instruments, as well as disclosing pre-tax writedowns of 1.35 billion dollars related to mergers and acquisitions lending agreements.

The financial colossus also said it lost 636 million dollars, pre-tax, from its fixed income trading operations, partly because of the August meltdown in financial markets.

The US credit and banking markets threatened to seize up in August as fears about the trillion-dollar mortgage market deepened, forcing banks to tighten their lending practices.

Investor demand for mortgage-backed securities dried up, sending the US and global stock markets into a tailspin as the Federal Reserve injected tens of billions of dollars into the US financial system to ensure liquidity.

The markets have since recovered, but analysts say the credit markets remain fragile.

The turmoil contributed to an 87 percent decline in Citigroup’s US markets and banking revenues during the quarter which was offset slightly by increased international revenues which grew by seven percent.

Citigroup’s large international footprint helped insulate it somewhat from the storms buffeting its US operations.

The banking giant said it also made a pre-tax gain of 729 million dollars on the sale of shares in Redecard, a Brazilian financial group.

But the credit problems deflated Citigroup’s earnings.

US credit losses, in part related to unsecured personal loans, swelled to 278 million dollars while international credit losses ballooned to 460 million dollars.

And the bank indicated it was setting aside provision for futher loan losses.

“Citigroup is preparing for future credit losses,” Morningstar analyst Ganesh Rathnam said in a research note.

“Credit loss rates are now increasing, and Citigroup must rebuild its loan-loss reserves,” Rathnam said.

One bright spot was Citigroup’s global wealth management business which reported a 41 percent increase in revenues to 3.5 billion dollars.

The volume of assets under fee-based management rose 41 percent to 454 billion dollars.

Citigroup’s quarterly profit of 2.4 billion dollars compared to 5.5 billion dollars during the third quarter of 2006 and a record quarterly profit of 6.2 billion dollars during the second quarter of this year.

Prince expressed optimism that Citigroup’s performance would improve.

“As we move into the fourth quarter, we are focusing closely on improving those areas where we performed below expectation,” he said.

Citigroup’s shares closed down 3.4 percent at 46.24 dollars amid wider market losses.