Citigroup Inc., the third-biggest U.S. bank, reported an unexpected profit increase, beating analysts' estimates as the company recouped funds previously set aside for loan losses.

First-quarter net income climbed 3.5 percent to $3.94 billion, or $1.23 a share, from $3.81 billion, or $1.23, a year earlier, the New York-based company said today in a statement. Excluding accounting charges and a tax item, profit was $1.30 a share. The average estimate of 27 analysts surveyed by Bloomberg was $1.14.

Chief Executive Officer Michael Corbat, 53, is getting help from an improving global economy that's making it easier for consumers and businesses to repay loans. Citigroup released $673 million in loan-loss reserves set aside in earlier years, exceeding the $500 million at Wells Fargo & Co. and the $227 million estimate of Matt O'Connor, a Deutsche Bank AG analyst.

"We expect that there is enough juice left in credit costs" to boost quarterly results for the industry, Chris Kotowski, an Oppenheimer & Co. analyst, wrote in an April 3 note. He assigns the equivalent of a buy rating to Citigroup's stock.

Profit was also boosted by improving results in a portfolio of unwanted assets the bank has marked for sale. Losses in the Citi Holdings unit where the bank keeps those assets narrowed to $284 million in the first quarter from $804 million a year earlier.

Corbat was dealt a setback to his turnaround plan last month when Citigroup failed an annual stress test administered by the Federal Reserve, which cited deficiencies in the bank's ability to project revenue and losses in its global operations. Regulators rejected the company's request to quintuple its dividend and repurchase $6.4 billion of shares.

"The capital return path that we expected to become clearer in 2014 has been delayed, Matt Burnell, an analyst at Wells Fargo, wrote in an April 7 report. The delay probably dents prospects for achieving Corbat's 2015 goal of reaching a 10 percent return on tangible common equity, Burnell wrote.

Corbat is struggling to boost revenue from the fixed-income business, where the lender ranked No. 2 last year among its largest peers, data compiled by Bloomberg show. Bond trading, which marred the company's two prior quarterly earnings results, fell 18 percent to $3.85 billion in the first quarter. Revenue from bond trading at JPMorgan Chase & Co. fell 21 percent to $3.76 billion, the New York-based bank said last week.

Citigroup Chief Financial Officer John Gerspach told investors March 3 that capital-markets revenue would drop by a ''high mid-teens" percentage.

JPMorgan, the largest U.S. bank by assets, reported first- quarter profit of $5.27 billion, and Wells Fargo posted record profit of $5.89 billion.

Corbat is also investigating a suspected $400 million loan fraud at its Mexico unit. The bank disclosed the matter on Feb. 28, and said it reduced 2013 profit by $235 million. Authorities including the Federal Bureau of Investigation are probing the matter.

The capital-plan rejection and regulatory investigations "brought back memories of the 'same old Citigroup,'" Burnell wrote.

Corbat, in response to the stress-test failure, asked Eugene McQuade to cancel his retirement and lead the company's submissions to the Fed over the next year, according to a memo obtained by Bloomberg News.

In the two weeks since failing the stress test, Citigroup reached a $1.13 billion settlement with bond investors and said it would sell its Honduran consumer bank and one-third of its branches in South Korea. The bank also is in talks to sell its retail and credit-card business in Spain to Banco Popular Espanol SA, the Madrid-based lender said in a filing last week.


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