US bank Citigroup posts 42% jump in quarterly profit

US bank Citigroup posted a 42 per cent jump in quarterly profit as bond trading revenue gained and stronger home prices helped the bad mortgages on its books, underscoring the bank's recovery since the financial crisis.

The third-largest US bank is getting its house in order after years of management problems forced it to seek three US bailouts in 2008 and 2009.

Chief executive Michael Corbat and predecessor Vikram Pandit cut risk-taking in its trading businesses, hired selectively in safer areas like investment banking, and scaled back in markets where the bank had few growth opportunities.

Citigroup is fixing itself amid a treacherous environment for global banks. Rising bond yields in the United States are expected to cut into debt underwriting volume and may cut into bond trading profit.

Citigroup, often seen as the most international of the major US banks, faces additional pressure from slowing growth in emerging markets. About one-half of its profit in the first half came from emerging markets.

Even as Citigroup improves operations, it faces economic and market problems that could weigh on its recovery, said Stanley Crouch, chief investment officer of Aegis Capital, whose clients own Citigroup shares.

“You get this riptide, and it may not be good,” Mr Crouch added. In the second quarter, Citigroup’s biggest profit boosts came from its securities and banking unit, where bond trading revenue rose 18 per cent, while stock trading revenue soared 68 per cent, and underwriting and advisory work was up 21 per cent. Overall second-quarter net income rose to $4.18 billion from $2.95 billion in the same quarter last year.

Excluding gains from changes in the value of its debt, the company earned $3.89 billion, up 26 per cent from the same quarter last year. Results beat analysts' average expectations, and Citigroup shares rose 2 per cent to $51.80. "What you see is the result of a lot of the repositioning and restructurings we have done over the last two to four years," chief financial office John Gerspach said on a conference call with journalists, speaking of gains in the securities and banking unit.

Two to three years ago, Citigroup hired a series of investment bankers, who have been generating revenue growth for the bank in areas like merger advisory.