INSTANT VIEW - Citigroup posts profit on one-time gain

NEW YORK (Reuters) - Citigroup, the embattled banking giant scrambling to survive the financial crisis, reported a second-quarter profit driven by gains on its Smith Barney deal but its primary banking businesses continue to suffer rising credit losses.

The No. 3 U.S. bank, propped up with $45 billion (27.5 billion pounds) of taxpayer money, recorded an $11.1 billion pretax gain from merging Smith Barney into a brokerage venture with Morgan Stanley. Morgan Stanley owns a 51 percent stake, but under accounting rules Citi gets to mark up its entire stake.

That gain helped Citi swing to a profit of $4.28 billion, or 49 cents a share, from a year-ago loss of $2.5 billion, or 55 cents a share.

Stripping out the one-off gain from the brokerage venture, Citigroup had a loss of 26 cents a share, narrower than analysts' consensus forecast of a 31 cent loss, according to Reuters Estimates.

The following is reaction from industry analysts and investors:

BILL FITZPATRICK, ANALYST, OPTIQUE CAPITAL MANAGEMENT INC,

MILWAUKEE

"The headline number looked great. The bank had very strong capital markets results, but increased credit losses in retail banking.

The government ownership stake in Citigroup puts them at a disadvantage and backs them into a corner. It makes it harder to attract talent and win market share when you have Uncle Sam looking over your back."