Jemal Countess/Getty Images for TimeVikram Pandit, chief of Citigroup.

With a big boost from a one-time accounting gain, Citigroup on Monday squeezed out its seventh-straight quarterly profit, but it faces significant challenges to growth.

Citigroup announced a third quarter profit of $3.8 billion, or $1.23 a share, beating analyst consensus estimates of 81 cents per share. That represented a 74 percent increase from a year ago, when the bank announced a quarterly profit of 2.2 billion, or 72 cents a share.

But a big portion of that increase came from gains that will be difficult to repeat. Citigroup benefited from a paper gain of $1.9 billion, reflecting a sharp increase in the perceived riskiness of its debt — an accounting adjustment that gave JPMorgan Chase a similar earnings boost last week. Citigroup also delivered another $1.4 billion to its bottom line from money it had previously set aside to cover losses on credit cards and other loans. Together, those items accounted for more than 85 percent of the company’s earnings.

“Citi continues to navigate a challenging economic environment and delivered another quarter of solid operating results,” Vikram S. Pandit, Citigroup’s chief executive, said in a statement. In a contrast to the sober overtones when JPMorgan kicked off bank earnings season with its results on Friday, Citi executives were a bit more bullish about the broader economy.

“We are seeing loan growth in every one of our businesses, in every geography,” said John Gerpsach, Citigroup’s chief financial offer, on a conference call with journalists. “There still is a recovery in place. It may not be moving as robustly as we would like it, but it’s there and having an impact.”

Even so, revenue growth remains under pressure.

Excluding the accounting adjustment on its debt, revenue dropped 8 percent to $18.9 billion as the bank contended with the global economic slowdown and some of the most turbulent markets in decades. Like the rest of the banking industry, Citigroup has come under pressure from rising expenses, slim lending margins, and the evaporation of many of the lucrative fees that kept its consumer businesses afloat.

Indeed, Citi shares have fallen sharply since the bank completed a reverse stock split in early May that brought its price to around $45 from $4.50. In early trading Monday, Citi shares were trading up around 1 percent to about $28.65.

For almost four years, Mr. Pandit has been engaged on an ambitious plan to streamline sprawling bank and turn it into a leaner, more nimble lender. But Citi has had to play catch-up in investing in its businesses — it was much slower out of the gate to do things like ratchet up marketing efforts and add new branches and bankers than some of its stronger competitors.

Expenses continue to increase – a result of that investment spending as well as the weakening on the U.S. dollar. Expenses were up 9 percent in the third quarter, even as the bank’s core revenues were down by about the same amount. And that is after a deliberate plan to reduce the total size of its balance sheet.

Today, the pile of assets that Citi plans to sell or shed is about $289 billion, although the pace of reduction has slowed substantially since the beginning of the year. The bank has struggled to find buyers for some of the biggest assets that remain earmarked for sale: CitiFinancial, its large consumer lending franchise, a roughly $115 billion portfolio of U.S. mortgages, and a $42 billion private-label credit card loan business.

On Monday, Citi formally announced that it now planned to retain the retail partner cards business after telegraphing the decision for months. “We have been reworking that portfolio for the last couple of years, changing some of the underwriting criteria” so that it now is more heavily weighted toward borrowers with stronger credit records, Mr. Gerspach said on the conference call. “It’s a markedly different portfolio than what it was in 2008 and 2009.”

Mr. Gerspach said the bank continued to solicit buyers for its mortgage portfolio and consumer lending franchise, which he noted has been profitable for the last three quarters.

On the surface, Citigroup’s investment bank fared better in the third quarter than some of its Wall Street competitors. Profit was up 58 percent, to $2.2 billion. But the bulk of that profit stemmed from the widening of its own credit spreads on its debt, which allowed the bank to book a paper gain since it would theoretically cost less if it was to retire its debt.

But there was sharp fall-off in investment banking fees and trading revenue amid the market turmoil. In particular, the bank’s equities derivatives unit had an extremely bad quarter, while the bank also missed out on revenue from its decision to wind down its proprietary trading unit in light of the new financial rules restricting such activities.

Citigroup’s lending businesses fared better, with profits up 31 percent to $1.6 billion. The strong results reflected the bank’s strength in emerging markets in Latin America and Asia. Meanwhile, its U.S consumer lending businesses were helped by the bank’s decision to release about $1.4 billion of loan loss reserve, largely because of the continued improvement in the performance of its credit card borrowers.

Although JP Morgan Chase elected not to take down its reserves, Mr. Gerspach said Citi officials believed their action was prudent and told reporters that current economic data suggested that the bank had room to release additional funds in future quarters.

Citi officials said they were remaining very attentive to the risks stemming from the running debt crisis in Europe. The bank has about $20 billion in gross exposure to the peripheral countries, like Greece, Ireland, Italy, Portugal and Spain. In addition, it has about $14.4 billion of gross exposure to France and Belgium. But because of decisions to hedge and collateralize many of those loans, its net current funding exposure is about $7.1 billion to the peripheral countries, and another $2 billion to France and Belgium.

“We believe it is manageable at current levels but obviously, it is something we are vigilante about,” Mr. Gerspach said on the conference call.

This post has been revised to reflect the following correction:

Correction: October 17, 2011

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