Citigroup soothes banking nerves

Citigroup soothes banking nerves

Fears of financial meltdown in the banking industry were soothed today by a smaller-than-anticipated loss at Citigroup, which revealed a sharp drop in liabilities arising from the global credit crunch.

Citigroup, the biggest bank in the world by assets, lost $2.5bn (£1.25bn) in the three months to June, against a $5.1bn loss in the preceding quarter. It took hits of $7.2bn on bad credit investments and mortgage-related securities, below forecasts of $8bn-plus.

Investors breathed a sigh of relief and Citigroup's shares jumped 8.7% in early trading on Wall Street.

The improved figures followed solid profits from JP Morgan on Thursday, easing concerns that major banks may need to raise extra capital.

Citigroup's chief executive, Vikram Pandit, said his turnaround plan was on track following a 42% fall in write-downs in securities and banking over the past three months. The bank has cut 11,000 jobs this year. "While there is still much to do, we are encouraged by our progress," he said. Wall Street is anxious for signs that major banks could be over the worst of the pain triggered by last year's collapse in the sub-prime mortgage market.

Although the industry was shaken this week by the failure of California's IndyMac Bancorp, the clues from larger institutions have been more positive.

Richard Bove, a banking analyst at Ladenburg Thalmann, said the spectre of dividend cuts and capital fundraising was fading......continued below

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"You'd have to put Citigroup in line with most of the banks reporting over the last few days, in that the numbers are not nearly as bad as people were expecting," he said. Moody's affirmed Citigroup's credit rating and Deutsche Bank's Mike Mayo upgraded the bank from sell to hold, saying revenue of $18.7bn was higher than expected.

The investment bank has written off some $50bn due to the credit crunch in the past year. Pandit has brushed aside calls for a break-up of the firm, which has some 350,000 staff in more than 100 countries, combining a wide branch network with investment banking and wealth management.

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