New York — Citigroup posted its biggest quarterly profit of the pandemic after reaping another windfall from trading bonds and expressing newfound confidence in the resilience of its loan book.

Traders focusing on fixed income, currencies and commodities posted their best third quarter in eight years, while the firm set aside about $1.5bn less for bad loans than what analysts had estimated. That helped the bank blunt the impact of regulatory costs and low interest rates.

While the trading boon came from a surge in client activity that has helped Wall Street banks throughout the pandemic, Citigroup’s provisions for loan losses marked a shift. After setting aside almost $15bn in the year’s first half for problem loans, the firm stockpiled only $2.26bn in the third quarter, nearly returning to the year-earlier level.

“Credit costs have stabilised,” CEO Michael Corbat said in a statement announcing results on Tuesday. Overall, “we continue to navigate the effects of the Covid-19 pandemic extremely well”.

The bank’s bond traders boosted revenue 18% from a year earlier to $3.79bn, while its stock traders experienced a 15% increase to $875m, in both cases surpassing analysts’ estimates.

Citigroup shares rose 2.1% to $46.84 at 8am in early New York trading. They had declined 43% this year.

The company had offered relatively little guidance on loan provisions, leaving analysts guessing far too high. At an investor conference in September, CFO Mark Mason predicted “an additional increase in reserves, albeit meaningfully lower” than earlier this year.

Total costs were still elevated by a $400m fine announced earlier in October by the office of the comptroller of the currency for the bank’s failure to fix longtime deficiencies in infrastructure and controls. The sanction, which some analysts expected would be booked later, contributed to a 5% jump in expenses to $11bn in the third quarter. The bank also entered into two consent orders with regulators that will require years of spending to overhaul its systems.

“We are committed to thoroughly addressing the issues contained in the consent orders,” Corbat said in the statement. “These investments will not only further enhance our safety and soundness, they will result in a digital infrastructure that will improve our ability to serve our clients and customers and make us more competitive.”

Earlier on Tuesday morning, competitor JPMorgan Chase & Co posted a surprise increase in earnings, fuelled by a 30% jump in markets revenue. The biggest US bank also defied expectations by cutting its reserve for loan losses by $569m, after adding $20bn to the allowance in the first half.


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