Citigroup: Ik zie je wel, ik zie je niet

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Hoera, Citigroup heeft een winst van $1,59 miljard in het 1e kwartaal ;)
Alleen jammer dat daar $2,5 miljard vrijgekomen voorziening voor derivaten
in verwerkt is.
Dat krijg je als de mark-to-market rule niet meer wordt toegepast.

Bovendien is de netto rente-marge voor Citigroup opgeschroefd naar 3,3%
Dus de klanten betalen door de neus.

Op deze manier wordt Citigroup gezond en de klanten gaan failliet.

Volgens mij gaat de economie dan achteruit, of zie ik dat verkeerd?
Komt er op neer op de vraag of het schip dat gered moet worden wordt
gevormd door Citigroup of dat het toch de economie is?

Groet / Cees

Can Citigroup's results be sustained?
Fri Apr 17, 2009 7:54pm EDT

By Dan Wilchins - Analysis

NEW YORK (Reuters) - Citigroup pulled a rabbit out of a hat in the first
quarter -- but can it do it again?

The company managed to turn in a profit this quarter by one measure, its
first quarter of positive net income since 2007.

It may be that Citigroup is returning to profitability, but some analysts
wonder whether this quarter's performance can be repeated.

Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) benefited from a
number of one-time items, such as selling its remaining position in
Brazilian credit card processor Redecard SA (RDCD3.SA: Quote, Profile,
Research, Stock Buzz) for $704 million, $250 million of litigation reserve
releases and $110 million of tax benefits related to resolving an audit.

Add another $2.5 billion accounting gain from adjusting derivative values
as the company's credit quality deteriorated and Citigroup's $1.59 billion
net income before preferred share dividends quickly turns into a loss.

Meanwhile, the bank's allowance for loan losses is growing, but not as
fast as the company's nonperforming loans, leaving some investors to
wonder if the bank is setting aside enough money to cover future losses,
known as reserving.

"How sustainable is this profit? How much reserving will they have to do
in the future?" said Ralph Cole, portfolio manager at Ferguson Wellman
Capital Management in Portland, Oregon.

The company's institutional clients group, which includes investment
banking, generated $9.5 billion of revenue in the quarter, much of which
came from bond trading. JPMorgan Chief Executive Jamie Dimon cautioned on
Tuesday that his bank's fixed income trading performance is not likely to
continue at the high levels seen in the first quarter.

"I think the first quarter was a historically high quarter," Dimon said,
implying that market conditions that benefited banks in the quarter may
not be repeated.

And the tremendous government support that helped Citigroup remain
profitable, including debt guarantees, $45 billion of capital and
insurance on a $300 billion portfolio of troubled assets, will not last
forever.

To be sure, there was good news in the Citigroup earnings report. Its
securities writedowns have slowed dramatically, signaling its credit
pressure in the future will likely come from loans rather than stocks and
bonds. Banks have more leeway to record credit losses from loans over
time, which can smooth earnings.

Net interest margin, a measure of loan profitability, rose to 3.3 percent
in the first quarter, up half a percentage point from the same quarter
last year, signaling the lending business is benefiting from low interest
rates.

NOT DISAPPOINTING

And nonperforming assets growth is slowing. Between the third quarter and
the fourth quarter of last year, these assets grew 56 percent, while
between the fourth quarter and the first quarter, that rate was 15
percent. Some consumer credit trends are improving, too.

The conversion of up to $52.5 billion of Citigroup's preferred shares into
common will reduce preferred share dividends, which were an eye-popping
$1.2 billion in the first quarter, and improve the bank's tangible common
equity ratio.

"These results were not disappointing, even if there are still huge
headwinds with respect to the credit cycle," said Marshall Front, chairman
at Front Barnett Associates, which has been buying Citigroup shares.

Determining how hard those headwinds will blow is the key for Citigroup.
The United States is facing the highest unemployment levels in a
generation and other economies are suffering as well, which makes
determining the magnitude of future losses very difficult.

But analysts at Goldman Sachs noted that Citigroup is trading at around
0.9 times its tangible book value based on common shares after the
conversion. Some analysts see that as a fairly high valuation for a
company still facing a difficult business environment. JPMorgan is trading
at closer to 0.7 times its tangible book value.

Ferguson Wellman's Cole noted that, even if Citigroup continues to be
profitable, other banks may be bouncing back faster.

"I feel a lot better about what I've seen other banks accomplish this
quarter," Cole said.

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