NEW YORK (Dow Jones)–Citigroup Inc. (C), reporting its strongest results in nearly three years, said the fallout is settling from the financial crisis and the bank’s massive strategic repositioning.

The bank’s first-quarter profit more than doubled from a year earlier as Citi was able to reduce its cost for bad loans and benefit from an improving economy abroad.

“With this quarter, a lot of the dust has settled and you are able to see a clearer picture” about the future of Citi, said Chief Financial Officer John Gerspach during a conference call with reporters, though he said future earnings won’t improve in a straight-line fashion.

Gerspach also was careful not to declare the credit crisis over.

Outside the U.S., he said it is clear “that the recovery has taken hold” in both declining losses from bad loans and demand for new loans. In the U.S., Citi doesn’t see demand and, given the lagging improvement in unemployment, probably won’t see much loan growth this year, Gerspach said.

As with competitors J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC), investment banking was the engine of profits and improved revenue from the previous quarter, though Citi’s investment-banking revenue lagged both competitors. Revenue at Citi’s securities and banking arm declined 34% from the year-earlier period as profit fell 48%.

Retail banking revenue rose 3% from a year earlier, to $8 billion, and the segment’s profit increased 28%, to $1 billion. Like J.P. Morgan Chase, Citi set aside more money for potential consumer lawsuits, though Gerspach didn’t disclose how much. And losses from bad loans in U.S. consumer portfolios remain high. During a conference call with investors, Gerspach said the he expects consumer losses from U.S. banking to improve moderately going forward.

(Reported revenue and charge-offs for the quarter were both higher partly because of an accounting change that pulled credit-card loans onto the balance sheet.)

“Our core businesses…produced over $5 billion of net income this quarter, earning attractive financial returns,” Chief Executive Vikram Pandit said in a conference call with investors.

The bank set aside less money for current and future losses from bad loans as such losses continued to improve, particularly in Citi’s operations abroad. Provisions for loan losses fell 16% from a year earlier and 5% from the fourth quarter, to $8.62 billion, and Citi took money out of its reserves for future loan losses. Adjusted for accounting changes, such losses fell 14% from a year earlier and 15% from the previous quarter, to $8.38 billion.

Citi’s revenue fell 5.8% from a year earlier, to $25.4 billion–also adjusted for accounting changes.

“The key positives of today’s report were: The securities franchise seems be back on track; and credit is improving, particularly the residential real estate portfolio,” Macquarie Capital analyst David Trone wrote in a research report.

HRH Prince Alwaleed bin Talal bin Abdulaziz Alsaud, Chairman of Kingdom Holding Company and Citi’s largest private shareholder, congratulated Pandit on the results, and said in a press release, Pandit “has my firm backing.”

The loss at Citi Holdings, which includes the assets the company is in the process of unloading, narrowed to $876 million, from $5.49 billion.

Citi reported a profit of 15 cents a share. Analysts polled by Thomson Reuters most recently forecast break-even results on $20.77 billion in revenue. Shares rose 7.5% in recent trading, to $4.90. The United States Treasury Department holds 27% of Citi’s stock but has said it plans to sell its stake this year.

The bank’s prior loss in the fourth quarter, although significantly narrowed from a year earlier, snapped a string of three straight quarterly profits because the bank repaid government aid.

Gerspach told reporters “Citi is not involved” in the Securities and Exchange Commission’s fraud charge against Goldman Sachs Group Inc. (GS) related to a collateralized debt obligation transaction.

-By Matthias Rieker and Nathan Becker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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