NEW YORK (AP) — Citigroup’s loan portfolio improved late last year, partly because Americans were better about paying down credit card debt. But choppy financial markets hurt its investment banking profits, and the bank missed Wall Street expectations.

The bank said Tuesday that profit fell 11% in the last three months of last year. Besides making less money on investment banking, the bank lost money because of a quirky accounting rule related to the value of its corporate bonds.

Citi (C) made $1.16 billion, or 38 cents per share, on revenue of $17.2 billion. The results fell short of the 54 cents per share estimated by analysts surveyed by FactSet, a provider of financial data. A year earlier, in the fourth quarter of 2010, Citigroup made $1.3 billion on revenue of $18.4 billion.

Editor’s Note: Citi Q4 revenues included $43 million from brokerage and asset manage sales, which were down vs. $136 million a year ago, largely reflecting a decline in the equity contribution from the Morgan Stanley Smith Barney (MS) joint venture, according to the company.

Citi’s stock fell 8 percent to $28.25 in Tuesday afternoon trading. It has plummeted 23% in the past six months as investors worry about the losses Citi would incur if the Greek government can’t pay its debts and the European debt crisis gets worse.

At year’s end, Citi held $33.4 billion in debt issued by European countries and loans to businesses in debt-hobbled countries such as Greece, France, Belgium and Ireland.

“Europe remains a dark cloud,” John Gerspach, Citi’s chief financial officer, told reporters after the financial results were released. But he said the bank had hedged its bets well and was “highly confident” that the losses would be contained.

Citigroup’s broad international profile helped its results. Its business and consumer loans grew 14% to $465 billion, with most of the growth coming from Latin America and Asia.

As Americans pay down debt, the bank’s credit card portfolio is improving. The number of Citi customers late with payments by 90 days or more fell 30% from the same period a year earlier.

Its losses from loans fell 40%, a bigger decline than the bank had anticipated. That allowed Citi to take a profit of $1.5 billion from the reserves the bank had kept aside for such losses.

But the volatile stock and bond markets in the fourth quarter led to a decline of 45% in Citi’s investment banking revenue, to $638 million. The bank made less money on debt and equity underwriting and fees from advising on mergers and acquisitions.

Citi, one of the worst-hit banks during the financial crisis, has been reducing the toxic loans in its portfolio — a condition of its $45 billion federal bailout. Those assets declined 25% in the fourth quarter, reducing overall revenue.

The bank also took a loss of $40 million because of an accounting rule that applies to the value of the corporate debt that the bank sells to investors. The value of that debt rose in the fourth quarter, but the bank had to take a loss because it would have had to pay more to buy it back on the open market.

For all of 2011, Citigroup’s income was $11.3 billion on revenues of $78.4 billion, compared to net income of $10.6 billion on revenues of $86.6 billion for the full year 2010.

This marks the bank’s second straight full year of profits. Citi’s results were badly hurt during the financial crisis, posting close to $40 billion in losses from 2008 and 2009 combined.

See AdvisorOne’s Q4 earnings calendar for the financial sector.