Citigroup, according to a piece I just heard on MSNBC, has had two profitable months in the first quarter of 09, yet the government has had to buy close to 40% of its stock. So, is the bank failing? Citi says it is profitable, It even says it is making loans.
I’m confused.
Here’s what Vikram Pandit, Citi’s CEO, said this morning in a memo:
I am most encouraged with the strength of our business so far in 2009. In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007. In January and February alone, our revenues excluding externally disclosed marks were $19 billion. Our client businesses are strong: our deposits are relatively stable, our client-driven Securities and Banking businesses have been performing well, including our recent #1 rank in M&A, and we continue to provide credit to consumer and corporate customers. You have all done a very impressive job driving revenues and reducing our cost structure, and it is gratifying to see the results first hand.
Citi has gone from about $1 to $1.25 a share and seems to be holding its own. Warren Buffet thinks it will be going up.
So… is this a sign that Obama’s approach is working? Let’s hope so.
the market has certaily reacted positively, dow up nearly 300 pts [+4.5%], s&p +5.17, and nasdaq +5.79, respectively.
of course, it could be all the hedgers covering their ‘shorts’ as it’s very likely the uptick rule is going to be reinstated:
Rep. Frank Says Uptick Rule Should Be Restored ‘Within a Month’
so assuming we’ve turned a corner may be a bit premature. the underlying issues, especially housing and credit, by and large, have not improved.
my 2¢. ymmv
msnbc is not the most reliable source for financial information, imo.
the same day as they tout this blip as a sign that the worst is over, this unfortunate news from mcclatchy, washington bureau: Regulatory reports show 5 biggest banks face huge loss risk sort of takes the wind out of citi’s, and the market’s exuberance. to wit:
recommended reading.
Why did the market vault up? Have we hit bottom? Is Citigroup coming out of the woods and with it the rest of the economy?
Bullshit.
Wall Street is now betting that mark-to-market accounting will be abolished soon based on Helicopter Ben’s remarks yesterday morning.
Translation: Wall Street banks want to be able to lie again about how much their toxic assets are really worth. Instead of valuing these toxic derivatives as what they are now — massive losses — the banks will be able to value them at what they paid for them originally.
Which means everyone will once again be pretending that the banks are solvent and cause a massive rally. Yay! Mass delusion for the win!
The House Financial Services subcommittee meets tomorrow to discuss changes to mark-to-market. If they indicate that Helicopter Ben is right and the rules need to be changed, expect to see the biggest sucker’s rally in history.
Banks will suddenly be profitable again! Obama’s stimulus plan will have worked! The worst will be over!
Right up until the commercial real estate, credit card, auto loan, and retail sector bubbles all burst this year and the second half of the recession truly begins.
Pop.
My take over at the Orange site:
http://www.dailykos.com/comments/2009/3/9/155915/0442/466#c466
I’ve been watching Citigroup’s finance page on Yahoo! for several days.
the day before the infusion this week of more federal money to Citi, their stock was just above $1 (down from a high of $55) and their market cap (their total cash market value) was around $6.75 Billion.
After the corporate welfare, Citi’s stock is up to $1.49 and their market cap is over $8 Bil.
Is this improvement due to Citi’s improved BALANCE SHEET? NO, it is not.
Citi has over $300 Billion in current and “future” losses, with $108 Billion in reserves. as others here and elsewhere have pointed out, there’s no reason to believe Citigroup is being honest about their losses.
The fact is, Citigroup is a ZOMBIE bank and should be nationalized now by the federal gov’t., instead of the partial buyout.
the “improvement” in Citi’s numbers the past few days have little to do with the health of their business; it has wayyyy more to do with Wall St. psychology and the fact the wealthy investors in Citi and the other Zombie banks are worried they are going to lose their investments.
The so far $50 Billion of our tax dollars given to Citigroup sends the “right” message to the investors, i.e. the Zombie banks are NOT going to be nationalized– which means even tho’ these investors took on massively risky investments, they will not have to bear the pain of the losses– WE the sappy taxpayers are going to bail them out.
THIS will end up being the largest transfer of wealth-from the poor to the rich-in world history.
$50 Billion given to Citi? we could have bought the company SIX times!
Obama, who promised we the voters for him that “change” had come to Washington and “bold” actions were coming is in fact applying Reaganomics to the problem of insolvent banks.
Please note the difference here between bank depositors and bank investors. bank depositors are protected to the level of $250,000 by the FDIC. bank investors are not protected by the FDIC.