By Manya Saini and Tatiana Bautzer
NEW YORK (Reuters) -Citigroup's third-quarter profit beat estimates on Friday as it benefited from a surge in trading revenue, investment banking fees and interest payments while undertaking its biggest overhaul in decades. The bank said it will cut management layers from 13 to eight as part of a sweeping reorganization. In the two top layers of leadership, 15% of functional roles were reduced, and the company has eliminated 60 committees, it said in a presentation.
"We need to change how we run Citi in order to truly transform it once and for all," CEO Jane Fraser told analysts on a conference call. "These are permanent changes that will be driven all the way down through the organization."
The bank is eliminating co-heads of divisions and regional roles. It will cut 50% of internal financial management reporting and centralize decision making.
Trading was a bright spot in third quarter, with revenues jumping 10% to $4.5 billion.
It was "a very strong quarter" for the markets division as volatility picked up, lifting performance in fixed income and commodities, Citi's finance chief Mark Mason told reporters on a conference call.
U.S. consumer finances are still healthy in a broadly uncertain environment, Mason added. "The U.S. keeps surprising us with its resilience," he said. Still, the bank predicts a mild recession in the first half of next year.
The third-largest U.S. lender set aside more money to cover souring loans, but said delinquency levels were still low compared to historical levels. Citi's total provision for the credit portfolio rose to $17.6 billion from $16.3 billion a year earlier.
U.S. banking giants have benefited from the Federal Reserve's campaign to quell inflation, which has increased borrowing costs and helped banks earn more from customer interest payments.
EPS BEAT, HIGHER GUIDANCE
Citi increased its forecast for net interest income (NII) this year to more than $47.5 billion from $46 billion, excluding markets. It also plans a modest level of stock buybacks in the fourth quarter, Mason said.
The quarter was much better than anticipated because of interest income and expenses, wrote Piper Sandler analyst Scott Siefers in a note to clients.
Goldman Sachs analysts also saw the results as positive.
"The market will ... see the change in NII revenue guidance as constructive as it implies an improved revenue mix against a more uncertain macro-economic backdrop."
The bank's shares climbed more than 1% gaining more than 3% earlier Friday.
Citi's net income rose 2% to $3.5 billion versus a year earlier, while earnings per share remained stable at $1.63 per share. On an adjusted basis, it earned $1.52 per share to beat the LSEG estimate of $1.21.
Revenue from the institutional clients group that houses its Wall Street operations rose 12% from a year ago, fueled by a 10% gain in trading revenues to $4.5 billion. Fixed income brought in 14% higher revenue.
Overall revenue climbed 9% to $20.1 billion.
Investment banking fees jumped 34%. Recent initial public offerings and debt issuance were positive signals for the business, and there is a good pipeline of merger and acquisition discussions, Fraser said. But an uncertain economic outlook is still holding back activity, she added.
Citigroup (NYSE:C) advised Exxon Mobil (NYSE:XOM) on its $60 billion purchase of Pioneer Natural Resources (NYSE:PXD), the largest deal this year.
Revenue for Citi's personal banking and wealth management division jumped 10% to $6.8 billion. Deposits at the end of the third quarter came in at $1.3 trillion, down 3% from a year earlier, as customers moved to high-yielding assets.
CEO Jane Fraser announced a sweeping reorganization last month, but will estimate the scale of layoffs and cost savings in the fourth quarter.
Expenses rose 6% to $13.5 billion due to rising costs and investments in control systems. It included severance payments for employees who were laid off as it sold some international consumer businesses. Citi is close to concluding its divestitures in Asia.
Rivals Wells Fargo and JPMorgan Chase (NYSE:JPM) also reported higher quarterly profits on Friday, boosted by rising interest payments. All three lenders increased their NII forecasts for this year.