Citi's out

My tells me C is up 17%. I can’t believe it! It’s like the market is celebrating a cripple as Mr. Primo Ballerino because he can lift his crutch for ten seconds. I know it’s not new, but still outrageous where “earnings” are coming from: Partly, because they are allowed to value their own debt at a lower price. Okay, fair enough: Because my credit reputation is so destroyed, people don’t want to touch my IOU’s anymore. So I buy them back at a discount and make a profit. What strikes me odd: GS, JPM, and now Citi all made phenomenal profits in “trading” in fixed income. I can’t prove it, but I suspect these trading returns would not have been possible without certain support coming from them government programs. Also: The company is announcing a profit of $ 1.6 bln, but eps are -0.18!!! Tststs… For an investor, the most crucial question should be whether a company is fundamentally sound. In the case of Citi the answer is a clear no to me. Not with the bread and butter business continueing to deteriorate and not with Pundit at the helm. To me: Citi = Shitty. Any thoughts?

manipulation. When the whole market was down in the first 3 months, How did they make money in billions. GS didn’t do much I-banking (No IPOs or debt underwriting) and still came up with 5B profit. Accounting manipulations.

shows citi down for me in pre market

correct me if i’m wrong, but are trading gains not entirely all real cash gains?

It was up at 8.30 but now in red

i spent my early years at citi many years ago - best trainers in the world - brilliant experience - ruled the world. I finally sold last year at 45. Was going nowhere. They clearly had no idea what they were doing. Numbers were purely fiction. I held on so long for sentimental reasons - figured they couldn’t be as stupid as they looked. lucky break for me I sold. wouldn’t wanna be a US tax-payer right now…

correct me if i’m wrong, but are trading gains not entirely all real cash gains? I wouldn’t argue against that, but I strongly doubt that these gains would havbe been possible without the interference of government and Fed. If these trading profits were made because the governmetn somehow created the conditions to make money more or less risk free, it implies that these trading gains will be made once these benevolent conditions are gone. At some point in the future, I trust they will be gone. Along the line of what cfaboston28 said: Fixed income is a wide field, but look at Treasuries: I would think that even the most skilled traders burned their fingers during this period of high volatility. And yet, GS and C rake in the nicest profits. Sound fishy to me.

You guys are misunderstanding the breadth of the term “trading”. Proprietary trading is a small part of what comprises this business. In this context trading also means making markets and earning commissions based on client activity. The Treasury and Agency markets have been extremely active. Hence, trading profits in fixed income. And in response to cfaboston on the lack of IPOs, that is true but there was quite a bit of M&A activity, including some very large deals like Roche-Genentech and Pfizer-Wyeth. Lots of fees to be earned on those deals. It’s not accounting manipulation. What you have to realize is that these companies have been taking huge asset writedowns for the better part of five quarters and at some point the earning power of the companies had to outstrip what was left to be written down. That earning power is certainly aided right now by the multitude of government actions and a steep yield curve with extremely low short-term rates but that’s not accounting manipulation, it’s just banks taking advantage of a favorable landscape.

tobias, thanks for shedding some light on the trading issue (in the accounting sense). It still doesn’t improve my impression of the recent bank earnings by much…

I was reading thru this crap this morning and thinking the same thing as Daddy Bear…the whole thing smells like BS. Which just goes back to how desperate everyone is these days to make it all look okie dokie now. It ain’t okie dokie.

From DealJournal: 5:10 PM Citigroup: Did It Really Earn $1.6 Billion? Not Really. Posted by Heidi N. Moore U.S. banks have had nothing but bad news for well over two years. So when a big bank like Citigroup is profitable to the tune of $1.6 billion in the first quarter, everyone feels a bit better. It is not time to get giddy, however. Citigroup announced today that it earned a profit of $1.6 billion on $25 billion of revenues, marking its first profit in 18 months. While those numbers appear impressive, here is what investors should know: Citigroup is doing much better than it was a year ago, but its profitability did not come from booming business. Instead, Citigroup’s profit was due to a lucky bit of accounting. If not for some of that friendly accounting, Citigroup would have recorded a loss for the first quarter. It all comes down to a $2.7 billion boost to Citigroup’s revenues from a little-recognized accounting adjustment that banks have been using since 2007 but has gone largely unnoticed. The rule is part of the Financial Accounting Standards Board’s FAS 159, which governs the rules under which banks value their debt, including everything from short-term lending to credit-default swaps. Essentially, the rule is a counterintuitive and confusing one. It requires banks to take a gain when the price of their debt falls. The reasoning behind it is this: When the debt declines in value, the banks have to assume at the end of the quarter that they bought the debt back and retired it. The banks would “buy it back” at a lower price, so they get to make a profit. Here’s an example: Imagine that a bank has a bond that was once worth 100 cents on the dollar and is now trading at 60 cents on the dollar. At the end of the quarter, the bank has to assume it would buy that debt back at 60 cents — which is essentially a profit of 40 cents. That’s what happened to Citigroup in the first quarter. Citigroup had a rough quarter in which investors showed little faith in the bank’s future by widening the spreads on the bank’s credit-default swaps. As those spreads widened, they sent the message that investors believed Citigroup would be less profitable. In a nice twist, the widening spreads also triggered an accounting rule that allowed Citigroup to record a profit. As Goldman Sachs analyst Richard Ramsden noted this morning in a report on Goldman Sachs, “Big banks seem to be determined to put their best foot forward ahead of the stress test. Adjusting for this… the bank lost money.” Citigroup is not the only bank benefiting from this accounting change. Banks have been using it for two years, but the profits they made from such accounting has been overshadowed by the massive writedowns the banks took on toxic assets. Now that writedowns are decreasing — due to another accounting change — banks are doing a bit better.

I went in prior to Monday’s open and got out at on Wednesday afternoon for a 19.5% gain in a couple days. I hardly put anything on the trade though.