Citigroup profits beat the forecasts

The bank said it believes its methods for documenting mortgages are sound, but it also said it is looking at the home loans it bundled into bonds and sold to investors to make sure the paperwork is in order. So far, it has not found any problems.

Investors in such mortgage bonds may be legally entitled to sell bad loans back to banks at face value because of documentation issues. US banks could be left holding billions of bad loans.

"Citigroup will have to give some indication that the problem is one that is easily handled, and they can define when it will be over," said Mike Holland who oversees more than $4bn (2.5bn) of assets at Holland & Co in New York. "I doubt they can do that, but that's what the investors would like to hear," he said.

Citigroup's third-quarter revenue rose slightly from a year earlier but fell from the second quarter, and the bank dipped into reserves to cover bad loans. The bank said revenues were hit by a slump in fixed income trading and losses on credit derivative hedges.

Like stronger rival JPMorgan, Citigroup beat earnings expectations in part by releasing money it had set aside to cover bad loans.