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People walk by a Citibank branch in New York January 17, 2012.

SHANNON STAPLETON/REUTERS

Citigroup Inc. made more money from mortgage lending and trading stocks and bonds in the third quarter, but profit dropped after it wrote down the value of its retail brokerage business by $4.7-billion (U.S.).

The results were better than analysts had expected, and the bank's shares moved up 3.5 per cent. A measure of Citigroup's lending profit rose, even as competitors' lending margins fell.

But the writedown of its joint venture with Morgan Stanley, amounting to $2.9-billion after taxes, reflects the bank's lingering difficulties from the financial crisis.

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Chief Executive Vikram Pandit is reshaping the bank to focus on commercial and investment banking, retail banking for relatively wealthy customers globally, and transaction processing. But the bank's Citi Holdings unit, which houses businesses and assets the bank is looking to shed, continues to lose money – $3.56-billion in the latest quarter, compared with a loss of $1.22-billion a year earlier.

Including the brokerage unit writedown, announced last month, Citigroup posted third-quarter net income of $468-million, or 15 cents a share, compared with $3.77-billion, or $1.23 a share, a year earlier.

Adjusted earnings, excluding the writedown and accounting gains and losses, was $3.27-billion, or $1.06 a share, beating analysts' average estimate by 10 cents, according to Thomson Reuters I/B/E/S.

The bank's net interest margin, a measure of profit on loans that excludes credit losses, rose to 2.86 per cent from 2.83 per cent in the same quarter last year. JPMorgan Chase & Co. and Wells Fargo & Co. both posted shrinking margins in their quarterly earnings reports last Friday.

Citigroup shares have soared in recent months, rising 27 per cent since the end of June and gaining nearly three times as much as the KBW Banks Index.

The bank said profits from commercial and investment banking increased 67 per cent in the third quarter on stronger revenue from fixed income and equity markets and lower expenses. Retail banking revenues in North America grew 35 per cent, primarily reflecting higher mortgage revenues.

The higher mortgage revenues were the result of wider profit margins on mortgage loans Citigroup made and sold to investors, Chief Financial Officer John Gerspach said on a conference call with reporters. Mortgage originations declined 15 per cent to $14.5-billion.

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Results outside the United States were generally weaker, with income from its continuing international consumer banking business down 3 per cent, and profits in transaction services provided to businesses and governments outside North America down by single-digit percentages. Some of the weaker numbers abroad were the result of changes in foreign exchange rates.

In September Citigroup agreed to sell its 49 per cent interest in the brokerage to Morgan Stanley at a price that valued the unit at $13.5-billion. At the time, it said it would take a charge to reduce its carrying value for the asset by about 40 per cent.

The joint venture was created in the financial crisis in 2009 as a way for Citigroup to shrink by transferring its Smith Barney brokerage assets to Morgan Stanley.

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