Tuesday, January 18, 2011

Citigroup Earnings: Swing and a Miss (C)

Swing as in swing to a profit but miss they did.
In premarket action the stock is trading down 3.22% at $4.96. The bet is that the stock closes on Friday at $4.99-5.00 or $5.00-5.01 thus wiping out all the expiring January options, both puts and calls, at that nice round strike price.

The stock is a buy.
Bloomberg has some pretty sharp instanalysis:
Citigroup Profit Misses Analysts' Estimates on Credit Spreads
Citigroup Inc., the third-largest U.S. bank, said earnings were $1.31 billion, less than analysts estimated, as the firm posted $1.1 billion in charges related to tightening of the bank’s credit spreads. 

Fourth-quarter net income was $1.31 billion, or 4 cents a share, compared with a $7.58 billion loss, or 33 cents, in the same period in 2009, New York-based Citigroup said today in a statement. Eight analysts had predicted in a Bloomberg survey that Citigroup would report a per-share profit of 7 cents.

The result marks the first profitable year under Chief Executive Officer Vikram Pandit, 54. Pandit took over in December 2007 and led Citigroup to losses of $29.3 billion during the next two years. The U.S. Treasury, which gave the bank a taxpayer-funded $45 billion bailout in 2008, also sold the last of its stake in the fourth quarter. Citigroup stock rose 43 percent during the year.

“They deserve a pat on the back but I don’t think anybody is taking victory laps yet at Citigroup,” said William Fitzpatrick, a portfolio manager at Optique Capital Management LLC, which owns Citigroup shares. “There’s a long way to go. It was a $50 stock four years 1 ago, it’s now $5.”

JPMorgan Chase & Co., the second-biggest U.S. lender, reported net income of $4.83 billion on Jan. 14. Bank of America Corp., the largest bank, may report adjusted profit of $2.61 billion on Jan. 21, according to the average estimate of 13 analysts in a Bloomberg survey....MORE

Citigroup Gain Masks Flawed Mortgages Sold to Freddie Mac
As Vikram Pandit celebrates his first full-year profit as head of Citigroup Inc., an old nemesis clouds the bank’s future: defective mortgages.

Three years after bad home loans helped trigger the recession and six weeks after the government cashed in the last of its $45 billion Citigroup investment, the New York-based bank is still selling mortgages that violate quality standards, according to an internal Freddie Mac review obtained by Bloomberg.

Fifteen percent of the performing loans Citigroup sold to the government-owned mortgage-finance company in the second half of 2009 and the first half of 2010 had such flaws as missing appraisals or insurance documents or income miscalculations, according to the review of 375 mortgages. The target for defects should be about 5 percent, said Tim Rood, a former executive with Freddie’s sister agency, Fannie Mae, and now managing director at Washington-based advisory firm Collingwood Group LLC.
Pandit, Citigroup’s chief executive officer since December 2007, faces $100 million in payouts on the loans if customers demand refunds for mortgages that stop paying, according to Paul J. Miller of FBR Capital Markets in Arlington, Virginia. Miller based his estimate on the numbers in the Freddie Mac memo. Underwriting gaps that led to failed mortgages contributed to $83.7 billion in credit losses since 2007 for Citigroup and to the government takeover of the mortgage-finance business...MORE

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.