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Citigroup Inc C-N reported a 25 per cent drop in third-quarter profit on Friday as the most global of U.S. banks set aside funds to cover soured loans from a potential economic downturn, while its investment bank struggled with a slump in global deal making.

The U.S. Federal Reserve’s aggressive actions to stamp out decades-high inflation have triggered fears of a downturn in the economy that could trigger a surge in loan losses for the banks.

Citi added $370-million to its loan-loss reserves in the latest quarter, compared with a reserve release of $1.16-billion a year earlier.

The increase in reserves pushed up Citi’s overall credit costs to $1.36-billion, the highest in eight quarters since the third quarter of 2020.

That compares with a benefit of $192-million a year earlier when extraordinary government stimulus helped the economy to rebound from pandemic lows.

Investment banking revenue tumbled 64 per cent to $631-million from a year earlier when Citi had its best M&A quarter and the second-best investment banking quarter in a decade.

Shares of Citi, which were down 1.2 per cent, have been trading at about half of the company’s net worth as it struggles to keep pace with larger rivals in terms of stock valuations and profitability.

Citi will likely take “3-5 years to hit more ‘normalized’ profitability measures,” said Eric Compton, equity strategist at Morningstar.

Revenue for Citi’s Treasury and Trade solutions business, which processes nearly $3-trillion a day in 140 currencies and 160 countries, rose 40 per cent to $3.2-billion as fees and trade loans grew.

Net profit was $3.5-billion, or $1.63 per share, in the three months ended Sept. 30, compared with $4.6-billion, or $2.15 per share, a year earlier.

Analysts on average had expected a profit of $1.42 per share, according to Refinitiv IBES data. It was not immediately clear if the reported numbers were comparable to estimates.

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