Citi posts double-digit FX growth

Although the bank does not publish results for FX trading revenues, it cited "strong double-digit revenue growth" in interest rate and currency trading in its Q3 results published on October 15.

"Strong foreign exchange revenues resulted from our traders' abilities to capitalise on the opportunities presented by the volatile third-quarter markets," said a source at the bank.

Asia had a particularly strong quarter, with fixed-income market revenues almost doubling on the back of interest rate, currency products and distressed debt, the bank said. However, it reported lower FX revenues in Mexico.

But all this paled in significance beside write-downs and losses from credit. The bank lost $1.56 billion on subprime mortgages warehoused for securitisation of future collateralised debt obligations (CDOs), CDO positions and leveraged loans warehoused for future collateralised loan obligations.

As a result, the bank's fixed-income markets revenues dropped 71% to $671 million in Q3, down from $2.315 billion for Q3, 2006.

"This was a disappointing quarter, even in the context of the dislocations in the subprime mortgage and credit markets," said Citi's chairman and CEO, Charles Prince. "A significant amount of our income decline was in our fixed-income business, where we have a long track record of strong earnings, and this quarter's performance was well below our expectations."

It was a similar story at JP Morgan and Bank of America, which both announced third-quarter earnings last week.

JP Morgan said rates and currencies had returned "record revenues", which were offset by a "very weak credit trading performance". Fixed-income markets revenue was down 72% to $687 million from $2.5 billion the year before. The bank marked down $1.3 billion on leveraged lending commitments and $339 million, net of hedges, on CDOs.

"Investment banking is a volatile business and, while we would typically expect lower earnings in the investment bank during a difficult market environment, such as this one, we still believe that our performance could have been a bit better," said Jamie Dimon, chairman and chief executive officer of JP Morgan.

Bank of America said its liquid products group saw "good gains". Sales and trading revenues in these products were up from $433 million in the third quarter of 2006 to $568 million in the third quarter of 2007. But it blamed "unprecedented market disruptions" for its poor trading results. Net income for the global corporate and investment banking group was down 93% to $100 million from $1.43 billion for the third quarter last year.

"While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third-quarter performance," said Kenneth Lewis, chairman and chief executive officer of Bank of America.

"However, the majority of our businesses experienced solid revenue growth as sales momentum continued, demonstrating the value of our diverse business mix. We continued to invest in our businesses for the long term and to introduce innovative products and services to differentiate Bank of America in the market. While we cannot predict the near term, I am confident that such innovation and execution combined with the advantages of scale and reach are the formula for future success."