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Citigroup Looks to Asian Deal Activity

Tom Braithwaite in New York
Monday, 15 Oct 2012 | 7:20 PM ET

Vikram Pandit said Citigroup should reap benefits from acquisition-hungry Asian companies while a solution to the US "fiscal cliff" would unleash pent-up demand in the US.

Reporting third-quarter earnings – which were hit hard by a writedown but beat analysts' estimates – the chief executive of Citi said the $20.1 billion acquisition by SoftBank, the Japanese telecoms group, of a 70 percent stake in Sprint Nextel, its US peer, typified deals to come. Citi acted for Sprint on the deal, which was announced on Monday.

"Across the board, there is a lot of activity going on in Asia as they build up their capital base [and] as Asia looks to the western world for acquisitions and you saw that with SoftBank-Sprint," he said, shrugging off worries over slowing growth. Citi derives almost half its revenues from emerging markets. Mr. Pandit said strong growth, particularly in Latin America, should push revenues 4-6 percent higher next year.

In the US, Mr. Pandit said: "We've got to get through the cliff – that could start creating the kind of growth that we think is really pent up in the US." If the US Congress does not take action, automatic tax increases and spending cuts are set to kick in next year, in what has been termed the fiscal cliff.

Citi's net income fell 88 percent year-on-year to $468 million in the third quarter, depressed by the sale of its stake in Smith Barney to Morgan Stanley, but the third-biggest US bank by assets beat analysts' estimates.

Earnings per share rose 26 percent to $1.06, excluding one-off items and the accounting treatment that forces banks to take profits and losses based on swings in its own credit spreads. Analysts had expected 97c a share, according to Bloomberg data. Revenues rose 3 per cent to $19.4 billion.

Citi during the quarter agreed to sell its 49 percent stake in Smith Barney, the retail brokerage joint venture, to its partner Morgan Stanley, valuing the business at $13.5 billion. That was much lower than Citi had valued the business on its books, triggering a $4.7 billion pre-tax loss in the quarter from a writedown.

Including the Smith Barney writedown, other one-off items and the debt valuation adjustment to cover changes in credit spreads, diluted earnings per share fell 88 per cent to 15c, and revenues fell 33 percent to $14 billion.

Fixed income trading was strong, with revenues up 63 percent to $3.7 billion. In the consumer business, the improving US housing market helped Citi. North American retail banking revenues rose 35 percent to $1.7 billion.

Its non-US consumer banking business saw revenues rise 3 percent on a constant dollar basis, with 7 percent growth in Latin America.

Shares in Citi rose 4.4 percent to $36.29 in early afternoon trading in New York.