Citigroup Inc's second-quarter profit jumped 24 percent as the bank lost less money than expected on bad U.S. loans.

Credit losses dropped 35 percent at the third-largest U.S. bank, which allowed it to dip into money previously set aside to cover bad loans. The bank's revenue from securities underwriting and merger advisory jumped 61 percent.

But many Citigroup businesses suffered. The bank's main continuing businesses, known as Citicorp, posted a 2 percent decline in net income. The only Citicorp business to boost profit was retail banking, which benefited mainly from lower credit costs in the United States.

I think they still have a lot of work to do, said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.

On a conference call with investors, Citigroup Chief Executive Vikram Pandit cautioned that uncertainty in the global economy could weigh on the banking industry in the second half of this year, but said his bank is comfortable with broader macroeconomic trends.

Pandit has stabilized Citigroup by selling off bad assets, allowing the bank to repay the $45 billion of government bailout money it took during the financial crisis.

But he is now trying to show investors that Citigroup can move beyond recovery to growth. Second-quarter results were not heartening to some investors on that front. Overall revenue fell 7 percent from a year earlier. Operating expenses rose.

Citigroup reported net income of $3.34 billion, or $1.09 per share, bettering the 96-cent average estimate of analysts polled by Thomson Reuters I/B/E/S. A year earlier it earned $2.7 billion, or 90 cents per share adjusted for a reverse stock split.

The results came a day after JPMorgan Chase & Co posted solid earnings, raising investor hopes for strength across the banking sector.

ELUSIVE 'NEW NORMAL'

Boosting business has been difficult this year for most U.S. banks, as weak fixed-income trading and market volatility have weighed heavily on results.

Like everyone else, what we're looking to determine over the next several quarters is, what is the 'new normal' level for activity, Citigroup Chief Financial Officer John Gerspach said on a conference call with reporters.

I'm not quite sure that we understand exactly where that is right now, he said in response to a question about possible trading layoffs.

Revenue at Citigroup's securities and banking unit, its commercial and investment bank, fell 8 percent, hurt by an 18 percent decline in fixed-income trading, to $3.033 billion.

That decline was partially offset by big increases in underwriting and merger advisory fees. Revenue for debt underwriting, equity underwriting and merger advisory rose 61 percent to $1.085 billion.

Falling income in commercial and investment banking pushed Citicorp's earnings down 2 percent to $3.66 billion. Losses in Citi Holdings, where the bank houses businesses and assets it is shedding, totaled $218 million.

Citigroup said overall revenue fell almost 7 percent to $20.6 billion, slightly better than the $19.9 billion expected by analysts.

Citi Holdings successfully slimmed down assets during the quarter by $29 billion, to $308 billion. At the beginning of 2009, Citi Holdings had $599 billion of assets.

Overall assets at Citigroup rose about 0.5 percent during the second quarter, to $1.956 billion, signaling that the bank is reducing its problem assets and growing its main continuing businesses.

Citigroup shares were off 8 cents to $38.94 in midday trading after rising as high as $40.38 in early dealings.

(Reporting by Maria Aspan; additional reporting by Joe Rauch in Charlotte and David Henry in New York; editing by John Wallace)

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