1 Big Bank's Big Belly Flop

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Today, Citigroup announced earnings and -- after excluding certain items -- both its revenue and earnings fell when compared to the prior quarter and the same quarter last year.

While aggregate results show marked improvement from the $468 million of net income in the third quarter of 2012 to the $3.2 billion reported in the most recent quarter, Citi had a variety of one-time charges in the third quarter of last year that make a comparison difficult.

However, as shown in the table below, on an adjusted basis in the third quarter of 2013, Citi reported earnings of $3.26 billion compared to $3.89 billion in the second quarter, and $3.27 billion in the same period last year:

Source: Company Earnings Reports.

In the third quarter of 2012, Citi recognized a $2.9 billion after-tax loss related to the sale of 14% of its 35% interest in the Morgan Stanley Smith Barney joint venture. Also, according to generally accepted accounting principles, firms can include the price of debt going down in value as earnings known as debt valuation adjustment, and also changes in the risk of different counterparties it interacts with as revenue known as credit valuation adjustment. For the purposes of the comparison, those are excluded in the adjusted amounts.

Citi CEO Michael Corbat said of the results: "We performed relatively well in this challenging, uneven macro environment. While many of the factors which influence our revenues are not within our full control, we certainly can control our costs and I am pleased with our expense discipline and improved efficiency year-to-date." He added, "With the environment remaining challenging, we will continue to focus on all aspects of our business to improve client satisfaction and shareholder results consistent with our strategy."

Each of Citi's three primary businesses -- global consumer banking, securities and banking, and transaction services -- saw their net income fall compared to the same period last year. 

Consumer banking
In the consumer banking business, Citi saw a big decline in its North American sector, where revenue declined 12% ($600 million), while international revenues dropped 1%. This led to the segment's total revenue falling 7% and its net income falling 23%.

Citi attributed this primarily to declining retail banking revenue as a result of lower mortgage origination. However, its originations stood flat at $14.5 billion in the third quarter of both 2012 and 2013, which actually is favorable when compared to JPMorgan Chase and Wells Fargo, as shown in the chart below:

Source: Company Earnings Reports.

Where Citi truly saw a big drop-off was in the sales of those mortgages and the rights to service them, which stood at $684 million in the third quarter of 2012, and just $167 million in the third quarter of this year.

Securities and banking
Citigroup also saw a large decline in revenue in its securities and banking business, which fell 10% over the last year, or about $600 million. This was primarily driven by its fixed-income revenue, which accounts for more than half of the business's total, falling almost $1 billion, or 26%, which Citi attributed to "lower volumes and a more uncertain macro environment."

Financial Times reported in September that in conversations with investors, Citi announced it would see major declines in fixed income trading revenue -- which caused the stock to fall by 3% on the day of the report.

Apart from the fixed-income business, Citi did see strong improvement in its equity markets and lending revenues, which, combined, were up about $300 million. However, it did see its investment banking revenue fall by roughly $100 million, or 10%.

By comparison, JPMorgan Chase saw its fixed income revenue down only 8%, and investment banking fees were up 6% when compared to the third quarter of last year.

Transaction services
Citi's smallest business saw its revenue relatively flat over the past year -- but it did see expenses tick up slightly, which led to a 4% decline in overall net income. While the business grew its assets by 18% over the past year, it actually saw the return on average assets decline significantly, from 2.29% to 1.87%.

This release comes just a day before the one-year anniversary of the announcement of Corbat's naming as Citi CEO. In that announcement, he said:

Citigroup possesses unique strengths to take on exciting opportunities around the world. With unprecedented economic, regulatory and political change, my top priority is to keep us focused on what our clients need, both today and tomorrow.

While the stock is up almost 35% since he was brought on, this quarter leaves something to be desired. 

The real winner
Citi may have announced earnings that left something to be desired -- but the financial sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

The article 1 Big Bank's Big Belly Flop originally appeared on Fool.com.

Fool contributor Patrick Morris has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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