The bank said it made good progress on shedding assets and cutting costs, including slashing 11,000 jobs since June, but added that tough credit and economic conditions worldwide could weigh on a variety of businesses, including investment banking and credit card lending. Shares fell 7.4 percent at midday.

"There will be two types of banks: those that survive and grab market share, and those that struggle," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "Citigroup is trying to position itself as being in the strong camp. But that doesn't make their job any easier."

The third-quarter net loss totaled $2.82 billion, or 60 cents per share, compared with a profit of $2.21 billion, or 44 cents, a year earlier. Its loss from continuing operations was $3.42 billion, or 71 cents per share.

Analysts, on average, expected a loss of 70 cents per share on revenue of $19.42 billion, according to Reuters Estimates.

Revenue fell 23 percent to $16.68 billion. Expenses totaled $14.43 billion, up 2 percent from a year earlier but down 8 percent from the second quarter.

Results largely reflected the bank's late-September forecast.

Citi has recorded more than $71 billion in credit costs and write-downs since June 2007, and has raised more than $40 billion in capital from investors.

It is receiving $25 billion from the U.S. Treasury Department's Troubled Asset Relief Program, which analysts said should free the bank from raising new capital for now.

"Being handed $25 billion means they don't have to come to the market, and I think that's huge. That was a pressure hanging over them," said Anton Schutz, president of Mendon Capital Advisors Corp in Rochester, New York, which owns Citi shares.

Chief Executive Vikram Pandit has cut 23,000 jobs this year, leaving the bank with 352,000 employees, and is trying to shed $400 billion in assets to cut costs and help restore confidence after the bank's shares lost close to three-fourths of their value since early 2007.

Citi shed $50 billion in assets during the third quarter, ceding its place as the largest U.S. bank by assets to JPMorgan Chase & Co.

JPMorgan ended September with $2.25 trillion in assets, compared with $2.05 trillion at Citi. Bank of America Corp would pass both upon completing its planned acquisition of Merrill Lynch & Co Inc in early 2009.

TIER 1 RATIO RISES

Citi's results reflected an 86 percent increase in credit costs to $9.1 billion, including $4.92 billion in net credit losses and a $3.9 billion increase in loan loss reserves.

Citi also recorded $4.42 billion in net write-downs tied to mortgage debt, leveraged loans and other investments, and a $612 million charge for a regulatory settlement related to auction-rate securities.

Citi's results came barely a week after losing out to Wells Fargo & Co in a bid to buy much of troubled banking giant Wachovia Corp.

Citi's $2.16 billion offer for much of Wachovia would have quadrupled Citi's undersized U.S. branch network.

Wachovia accepted Wells Fargo's $15 billion offer for the entire company. Citi has sued, seeking $60 billion in damages, claiming breach of contract and interference with its rights.

Citi's Tier-1 capital ratio -- a measure of its ability to cover losses -- rose to 8.2 percent as of September 30 from 7.12 percent at the end of 2007. Regulators consider 6 percent sufficient.

Shares of Citi dropped $1.20 to $15.03 on the New York Stock Exchange. The 24-member KBW Bank Index slid 6.4 percent.

The stock has fallen 45 percent this year, compared with a 35 percent drop in the KBW index.

(Additional reporting by Joseph A. Giannone; Editing by Steve Orlofsky, John Wallace and Jeffrey Benkoe)