Hey Citigroup – What Ever Happened to That Profit?
Friday, April 17, 2009 15:17
It was only a month ago when Citigroup CEO Vikram Pandit assured the public that his troubled bank was “Profitable” for the first 2 months of 2009. The news sparked an immediate rally which lifted the oversold stock market from its March lows. We, at Charting Stocks, did not share in the new found optimism (See: Fool Me Twice: Citigroup CEO Shouldn’t be Trusted) because we’ve heard these assurances before from Mr. Pandit (Which proved to be false). It came as no surprise when Citigroup announced an $0.18/share loss (about $10 billion) yesterday. Keep that in mind for the next time Vikram tells you things are going swell.
Sure, the media has touted the results as positive and even echoed the company’s talking points in which the claim that the bank was actually profitable for the quarter if you exclude the payments made on preffered shares. Is that accurate? Well, yes it is but it excludes a very important fact which was not advertised in the banks press release - More than half of Citi’s reported fixed income revenue came from a $2.5 billion write-UP, thanks to an accounting rule tied to credit default swap positions on Citis own debt.
“The rule exploits the notion that a company could buy back its own besieged bonds on the cheap, leading — however bewilderingly — to profit.
In other words, Citigroup was able to book a massive profit because investors are betting that’s it’s still on a road to bankruptcy. There are only two probable outcomes from this paradoxical situation: Investors are right, and Citi is heading for failure, or investors are wrong, and Citi’s $2.5 billion illusory profit will disappear. Either way, it’s absurd to call this “earnings” in any way, shape, or form.”
If Citigroup were to have an actual profitable quarter, I’d expect it will be one in which Pandit won’t feel the need to give any “Assurances” to the public at all.
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BlueyBlogger says:
April 18th, 2009 at 12:21 am
Did anyone ever ask Citibank/Citigroup what they’ve done with the $4.3 Trillion of Leo Wanta’s money? Where has that seemed to disappear to?……..bet ya they didn’t use it to prop up the economy I’ll betcha!!!