By David Henry and Sweta Singh

(Reuters) -- Citigroup Inc reported a 51 percent jump in quarterly profit as lower costs more than made up for a fall in revenue amid increased market volatility and uncertainty about the timing of a U.S. interest rate hike.

Legal and related costs of the No.3 U.S. bank by assets nosedived from a year earlier, with the lender putting most of the problems stemming from the financial crisis behind it.

Operating expenses fell 18 percent as Chief Executive Michael Corbat works through his plan to exit businesses where profits and prospects are not worthwhile.

U.S. banks including Citi, JPMorgan Chase & Co and Bank of America Corp are cutting costs to boost earnings as overnight fund rates stay near zero and fixed-income trading, long a source of revenue growth, shows no sign of picking up.

Citi shares rose as much as 4.3 percent on Thursday.

Citi Holdings, "the bad bank" that holds assets marked for sale, saw the biggest plunge in revenue, a steep 32 percent, as assets in the unit shrank 20 percent.

The lender expects to close an additional $31 billion in Citi Holdings' asset sales in the fourth quarter, Corbat said on a conference call.

Revenue decline in Citicorp, Citi's largest unit that holds core businesses, was the smallest at 2 percent.

"It was a relatively straightforward quarter - a positive in our view considering both the complexity of Citi and the volatility experienced globally in the third quarter," Deutsche Bank analyst Matt O'Connor wrote in a note.

Citi's institutional clients group was the only unit to post a rise in revenue, helped by higher private banking and equity market income.


Citi is the most international of U.S. banks, with half of its revenue coming from markets outside North America.

The lender's revenue from Asia fell amid slowing economic growth in China.

Revenue from fixed income markets declined about 16 percent to $2.58 billion, reflecting a trend seen in the results of other big U.S. banks.

Goldman Sachs Group Inc, which also reported results on Thursday, said bond trading revenue fell 33 percent.

JPMorgan and BofA also reported a fall in third-quarter revenue this week, hurt by muted trading.

Citi's adjusted return-on-assets rose to 0.91 percent from 0.64 percent, meeting Corbat's target of at least 0.9 percent for the year.

Total revenue fell about 5 percent to $18.69 billion. Net income rose to $4.29 billion from $2.84 billion a year earlier.

Adjusting for some accounting items, profit rose nearly 38 percent to $1.31 per share, beating the average analyst estimate of $1.28 per share, according to Thomson Reuters I/B/E/S.

The results reflect Citi's success in winning approval from the Federal Reserve to buy back stock. The number of shares outstanding fell 2 percent from a year earlier, boosting earnings per share.

Citi will favor stock buybacks over dividends as long as its shares trade below their tangible book value, Corbat said.

Citi's shares were at $52.84 in afternoon trading, well below the stock's tangible book value, which rose to $60.07 in the third quarter from $57.41 a year earlier.

(Reporting by Sweta Singh in Bengaluru and David Henry in New York, additional reporting by Rachel Chitra; Editing by Kirti Pandey)