By David Henry and Sweta Singh
(Reuters) - Citigroup Inc's <C.N> quarterly earnings beat Wall Street expectations on Thursday as cost-cutting, a unit sale and a gain in investment bank fees compensated for weak bond trading and a jump in provisions for consumer bad debts.
Chief Executive Michael Corbat has pledged to grow profits from consumer lending to stock trading, and return tens of billions of dollars to shareholders after finally putting the United States' fourth-largest bank on a stable path following the 2007-09 financial crisis.
But hopes President Donald Trump would stimulate trading activity and greater economic demand through tax reforms and a loosening in financial regulations have failed to materialize.
"We all would anticipate greater loan growth if there was a bit more clarity as far as you know when or if tax reform was going to pass," Chief Financial Officer John Gersprach told reporters.
Citigroup reported a 7.6 percent increase in net income in the third quarter. Earnings per share rose about 15 percent to $1.42, bolstered by the bank's move to reduce its shares outstanding by 7 percent. Analysts had, on average, estimated earnings per share of $1.32, according to Thomson Reuters I/B/E/S.
Expenses dropped 2 percent. Total revenue, meanwhile, rose about 2 percent to $18.17 billion, topping expectations of $17.90 billion helped in part by an increase in fees earned on share sales at Citi's investment bank and a jump in equity trading.
Overall, however, trading dropped 11 percent, dragged under by Citi's large fixed income division.
Wall Street banks have seen major declines in bond trading activity, which was boosted last year on global macroeconomic uncertainty, especially around Brexit and the U.S. presidential election.
Overall, Citi's trading performance was still better than expected and bested rival JPMorgan which saw a 27 percent slide in bond trading compared with the 16 percent drop at Citi.
Last month, Gersprach warned that overall trading revenue would fall by 15 percent, worse than the 11 percent drop that materialized. He said, in the end, September was better than anticipated.
Citi's shares were down 2 percent in late morning trade, the worst performer among the major U.S. banks. Citigroup's shares have had a strong run-up this year, climbing 26 percent partly due to its share buyback plan.
U.S. BRANDED CARDS
Citi's global consumer banking business had a mixed quarter as growth in Asia and Latin America was overshadowed by a drop in the United States. Total consumer net profit fell 6 percent with income in its core North American market down 16 percent as provisions for bad debts rose.
Adding to increasing concerns that more consumers may be getting stretched on credit card bills, Citigroup said its company wide net credit losses were up 17 percent from a year earlier and that it had added $194 million to its loan loss reserves.
Corbat told analysts the uptick in provisions were a normal part of the credit cycle and did not point to evidence of consumers under stress.
Citigroup this year has been ratcheting up its expectations for soured loans for its two North American credit card businesses, Citi-branded cards and cards issued for stores.
The store cards business has been grappling with less successful collection efforts after accounts become delinquent. The branded cards business has seen loss rates rise as some customers who the bank has added in recent years during a growth push have missed payments.
Revenue from the North American branded cards business declined 1 percent, even though the company had said that it expected a significant payoff in the last half of this year from earlier investments in its card business with retailer Costco and from its promotion of its Double Cash card.
Citi-branded cards in the U.S. provide about 10 percent of Citigroup revenue and profits and are seen by Corbat as one of the company's best shots at growing profits.
Bank of America Corp <BAC.N> and Wells Fargo & Co <WFC.N>, the second- and third-biggest U.S. banks by assets, are scheduled to report quarterly results on Friday.
(Writing by Carmel Crimmins; Editing by Bernard Orr and Susan Thomas)