Wednesday 14 July 2021 2:30 pm | Updated: Wednesday 14 July 2021 2:32 pm

Citigroup profits smash estimates as bank unlocks loan loss reserves

US bank Citigroup smashed analysts’ estimates for second-quarter profits as the sharp American economic rebound allowed the bank to unlock a deluge of loan loss reserves.

Net income surged to $6.19bn in the second quarter of this year, up sharply from $1.06bn in the same period last year.

The banking giant’s profits were lifted by the release of $2.4bn of loan loss reserves it had accumulated during the pandemic to offset an expected wave of Covid-induced defaults.

Just a year ago, Citigroup added $5.9bn loan loss reserves.

The rapid economic rebound in the US has in part helped to eliminate an expected wave of consumer and business defaults. Income protection schemes have also provided borrowers with funds to service to debts.

Jane Fraser, chief executive of Citigroup, said: “The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising.”

Wall Street rivals have reported a string of positive earnings results this week, boosted by the US’s faster than expected economic recovery.

JPMorgan, Goldman Sachs and Bank of America’s bottom lines benefited in part from the release of loan loss reserves.

However, the Citigroup’s revenue slid sharply on last year, driven by poor results in its credit card business as consumers reined in spending and paid down debts during the pandemic.

Overall revenues were down 12 per cent from the year before. Consumer banking revenue dropped seven per cent.

Citigroup’s trading arm performed poorly, with trading income down 30 per cent compared to a year earlier. However, this was partly due to income being compared to the same period last year when volatility in financial markets drove record trading volumes for Wall Street banks.

Investment banking was a bright spot, with Citi’s investment banking arm’s revenues up to $1.8bn, helped by firms stepping up dealmaking activity amid depressed asset valuations.