Citigroup Inc. (C) Earnings Preview: Third-Quarter EPS Seen Flat As Mortgage Business Slowed

Citigroup Inc. (NYSE:C), America’s third largest bank, is expected to report third-quarter earnings flat versus a year ago as a falling mortgage business and broader weakness in the fixed income unit hits.

Wall Street expects Citi to post third-quarter earnings of $1.06 a share, even with year-ago results, according to analysts polled by Thomson Reuters.

The analyst estimate for Citi fell throughout the third quarter, from $1.16 a share back in the summer. Five analysts have cut their EPS estimates for Citi in the last month.

Revenue is expected to be $18.77 billion compared with $13.95 billion in last year’s third- quarter.

Citigroup faces pressures on several revenue sources, international credit costs and high level expenses, According to JPMorgan Chase & Co. (NYSE:JPM) analyst Vivek Juneja.

Signs of a soft quarter for Citigroup came when it fired 1000 workers in its home-lending unit, following a similar move at Wells Fargo, which sacked 3000 workers. Both banks were reacting to a decrease in the mortgage sector, primarily because of higher interest rates, meaning less demand for mortgage orientations and refinancing.

Freddie Mac said this week that the 30-year fixed-rate home loan is now over 4.6 percent, up a full 1.1 percentage points from the spring.

UBS analysts expect Citi’s third-quarter revenue to fall 7 percent from the second quarter. Looking further out they said they expect full second-half profit to slide 11 percent.

“Our caution is driven by revenues where we have third quarter down 7 percent versus the second quarter,” explained the note. “While our forecasts are consistent with what we expect at other large banks, we think Citi will be less aggressive in releasing provision reserves – so more of the decline could fall to the bottom line at Citi than at peers.”

The bank, has not given any guidance about reserve releases, but research firm Portales Partners estimates that the 16 major banks it follows have $14.7 billion of reserves that could be funneled into earnings. A third of that is in residential real estate portfolios, and another third is in commercial real estate, said Portales research director Jennifer Thompson. The rest is in areas including corporate loans and auto loans.

Citi shares have risen 21% for the year to date.

Early Friday, JPMorgan Chase & Co (NYSE:JPM), the nation's largest bank by assets, on Friday reported a $380 million loss on lower revenue and massive legal bills.

JPMorgan took a $7.2 billion charge against earnings to cover its legal bills, which CEO Jamie Dimon -- who is facing his first loss at the bank since he took the top spot in 2004 -- said had climbed to nearly $9.2 billion.

Despite the high-profile loss at J.P. Morgan and an expected pullback in Citi results, the S&P 500 financial sector is expected to grow earnings 9.1 percent in the third quarter, according to research from PNC Financial