Citigroup Sees 50% Cut in 3rd-Quarter Profit

Newly formed financial services conglomerate Citigroup Inc. said turbulence in world financial markets would reduce its third-quarter profit by more than 50%, to about $700 million.

John S. Reed, chairman of Citicorp, and Sanford I. Weill, chairman of Travelers Group, issued the warning as part of an announcement that the two companies had completed their merger. Citicorp and Travelers had a combined net profit of $1.5 billion in the year-ago period.

Citigroup, the nation’s largest financial services company, expects weak results in part because of a $325-million net loss at its securities unit, Salomon Smith Barney.

Salomon Smith Barney went into the red after it suffered about $700 million in net losses because it had to mark down the value of its junk-bond and emerging-markets securities this summer.

Reed and Weill, co-chairmen of Citigroup, said they plan to boost profit by reducing risks and cutting expenses. They would not say whether the current downturn across the securities businesses will prompt Citigroup to eliminate more jobs than the 8,000, or 4% of its work force, it has already said it may cut before year-end.

“I think that Salomon Smith Barney, as well as all of our companies, are looking at what their expenses are as it relates to their current projections of income, and that’s going to create the need for adjustment,” Weill said. The company is “still growing employment in some areas that are doing well,” such as commercial lending, Reed added.

Citigroup’s Citicorp segment also was hurt by turmoil in Russia, suffering $240 million in net losses.

Citigroup said it expects its performance to turn around next year because of strong results in its consumer banking and insurance businesses.

The company noted its corporate businesses would continue to operate in “‘choppy conditions” and said it would monitor its expenses carefully while managing its risks aggressively.

Stock in New York-based Citigroup closed up 75 cents at $32.50 on the New York Stock Exchange.