Tuesday, January 18, 2011

Citigroup’s pain-management plan: Excuses and Putting Its $248 Billion Cash and Equivalents to Work (C)

I think the first piece is a bit harsh but is worth the read. The second lets you know just how big the behemoth is.
Both from MarketWatch:

Commentary: Shareholders are getting excuses again
Vikram Pandit, the chief executive of Citigroup Inc., didn’t exactly say “mission accomplished,” but he did seem satisfied with the bank’s most recent financial results reported Tuesday. 

“I am very pleased that with our fourth consecutive profitable quarter, we earned $10.6 billion for the year,” Pandit said in a statement.

Not exactly the honest assessment a shareholder would want from a CEO whose bank just announced an earnings disappointment on the level Citigroup (C 4.83, +0.03, +0.63%)  did. Quarterly net profit came in at a disappointing $1.31 billion — about half of the analyst consensus. Read full Citigroup earnings. 
Citi blamed the worse-than-expected results on weak business in investment banking and trading. It’s true those businesses did suffer, though J.P. Morgan Chase & Co. (JPM 44.76, +0.01, +0.02%) , the blue chip that runs virtually an identical business model as Citi, was able to somehow create a $4 billion profit for the fourth quarter in the same environment.

It’s always another excuse or shifting expectations at Citigroup. Handed a dismal quarter, Pandit’s focusing on a profitable year. The suggestion is that eking out a profit is the new standard for a too-big-to-fail bank that leans on the government and taxpayers.

A more jaundiced look at Citigroup reveals that the bulk of its “profit” for 2010 was built on the release of loan-loss reserves, cash it was forced to set aside to gird against defaults. In the latest quarter, Citi released $2.25 billion. You can do the math: Without that amount released, Citi would have posted a loss of close to $1 billion....
From Yesterday's "Citigroup is Reporting Earnings on Tuesday Morning and the Treasury Will Be Auctioning Citi Warrants--What are they Worth (C)":

...As for Tuesday's earnings, the average analyst estimate is 8 cents with the range being a nickle to 9 cents. Because of the recent run-up a penny miss would hurt more than a positive penny surprise. My best guess is that loan write-offs have declined to a small number and the company may even take some money out of loan-loss reserves, not real high quality earnings but earnings none-the-less....
Write-offs not terrible, credit spreads, ouch.
The difference in the earnings estimates is because I used Thompson-Reuters.

Citigroup to put cash pile to work, CFO says
 Citi has $248B in cash and positions that can be converted quickly to cash
Citigroup Inc. built up a big pile of cash in the wake of the financial crisis and now the financial-services giant is ready to put this money to work making loans and repaying debt, Chief Financial Officer John Gerspach said Tuesday.

Citi  (C 4.85, +0.05, +1.04%)  reported fourth-quarter earnings that missed analyst expectations earlier on Tuesday, sending the stock down more than 5%. Read about the results here.
During a conference call, Rochdale Securities bank analyst Richard Bove questioned why Citi has so much cash squirreled away earning little interest.

Citi had $190.4 billion in cash and deposits with banks at the end of 2010. The company also had a net positive position in the Federal Funds market of $57 billion. Money is either borrowed or loaned overnight in this market, so it can be converted into cash very quickly.

Taken together, this left Citi with $247.6 billion in cash, which equals 12.9% of the bank’s $1.91 trillion in assets, according to Bove....MORE