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New York - Citigroup Inc's first-quarter profit fell 32% as bond trading revenue plunged and operating expenses jumped.
The results were better than analysts expected, but Citigroup shares were down a penny at $4.41 in morning trading.
The third-largest US bank generated profit in large part because it dipped into funds previously set aside to cover bad loans, releasing $3.37bn of reserves.
Revenue fell 22% to $19.7bn, and operating expenses rose 7%, in part because of higher compensation and legal costs.
"The numbers look OK relative to expectations, but it's a tough slog. I think the tepid loan growth is just confirmation of the expectations people have," said Michael Holland, chairman of money manager Holland & Co.
Citigroup said it earned $3.0bn, or 10 cents per share, down from $4.4bn, or 15 cents per share, a year earlier. Analysts on average had expected 9 cents per share, according to Thomson Reuters I/B/E/S.
The bank's higher expenses came from several areas, including spending more on compensation and benefits compared with the same quarter last year, and rising legal expenses. On a conference call with reporters, Chief Financial Officer John Gerspach declined to comment on why legal expenses had changed.
The higher compensation expenses may be linked to the bank's interest in investing in business opportunities, which Gerspach told reporters is a priority to be balanced with being disciplined on expenses.
It is the fifth consecutive quarterly profit for Citigroup, which is slowly recovering after taking $45bn across three US government rescues during the financial crisis.
By the end of 2010, the government had shed its common shares in Citigroup, and the bank reported its first annual profit since 2007.
Like rivals JPMorgan Chase & Co and Bank of America Corp, Citigroup is struggling to grow its revenue in a difficult trading environment, and with weak demand from creditworthy borrowers for new loans.
The bank did add assets to its balance sheet in the first quarter, bringing its total assets to $1.33 trillion, a 3.6% increase from the fourth quarter of 2010.
But loans fell 1.8% from the fourth quarter, with gains in assets coming from areas like trading account assets.
In Citigroup's securities and banking business, fixed income trading revenue fell 29% to $3.8bn.
