Citigroup loses $2.5 billion

Citigroup Inc. has become the latest big bank to quell Wall Street’s worries about a financial sector implosion, posting a second-quarter loss that, at $2.5 billion, was smaller than expected.

Citi shares rose almost 8% on Friday and helped lift other financial stocks, having joined JPMorgan Chase & Co. and Wells Fargo & Co. in convincing investors that the prognosis for the sector, while gloomy, may not be as dire as feared.

But it’s hard to get too enthusiastic about clearing a low bar. It was Citi’s third straight quarterly loss, and neither JPMorgan nor Wells Fargo managed to notch a profit gain compared with last year.

Meanwhile, brokerage Merrill Lynch & Co. reported a wider-than-expected quarterly loss. And next week, Wachovia Corp. and Washington Mutual Inc. are anticipated to reveal losses, too, with Bank of America Corp. expected to report a steep profit decline.

“I don’t think anyone’s breathing too easily right now,” said Prakash Shimpi, who works in the risk management practice at Towers Perrin. Determining the dollar value of certain assets backed by debt is still a tricky process, he said, even a year into the crisis.

Citigroup, the nation’s largest banking company by assets, lost 54 cents a share in the April-June period. The bank earned $6.23 billion, or $1.24 a share, in the same quarter last year.

The shortfall was tamer than the 66-cent loss analysts, on average, were expecting, according to Thomson Financial.

Citigroup Inc.’s securities and banking division wrote down the value of its assets by $7.2 billion, before taxes, and an asset revaluation cost its consumer lending business $745 million. Those write-downs, totaling about $8 billion, are significantly lower than write-downs taken in the first quarter and last year’s fourth quarter.

However, credit costs jumped to $7.2 billion as more consumers defaulted on their loans -- implying that while losses in the credit markets are decelerating, losses from actual defaults in Citigroup’s mortgages, home-equity loans, auto loans and credit card lines are mounting. The $7.2 billion in credit costs included $4.4 billion in losses and a $2.5-billion charge to bulk up reserves for future loan losses.

Citigroup shares rose $1.38, or 7.7%, to $19.35.