Is Citigroup Pulling a Fast One or Are Their Profits Legit?

Citigroup hasn't shown a profit since the July-September period of 2007. Suddenly their CEO Vikram Pandit said they have been profitable for the month of January and February. This news helped the market rise almost 400 points on this news on March 11, 2009.

Dow ends up nearly 380 on Citigroup profit news

www.chinadaily.com.cn...

The CEO goes on further to say that Citi's projected earnings before taxes and one-time charges would be about $8.3 billion for the full quarter if March goes as well as January and February.

Citigroup Inc. has been operating at a profit through the first two months of the year, according to a letter that the embattled bank's chief executive sent to employees.

In the letter sent Monday, CEO Vikram Pandit said the first-quarter performance so far has been the bank's best since the last time it recorded net income for a full quarter - that was in the July-September period in 2007. Based on historical revenue and expense rates, Citi's projected earnings before taxes and one-time charges would be about $8.3 billion for the full quarter.

www.nypost.com...



However, all of this sounds fishy to me especially since Citi got 45 billion tarp money from the government. They disclosed how they were going to use 36.5 billion of that money, but that still leaves 8.5 billion unaccounted for. That 8.5 billion is very similar to the 8.3 billion Citi is projecting for this full quarter. Coincidence?

Citigroup Inc. (C) is lifting the curtain on the $45 billion in taxpayer capital it received, saying it plans to use $36.5 billion to fund U.S. mortgage loans and assist credit card holders and businesses.

In the first of four quarterly reports, Citigroup said the money it received from the U.S. Treasury’s Troubled Asset Relief Program (TARP) will not fund advertising, marketing, lobbying, compensation and bonuses. Nor will it be used to pay the company’s dividend.

seekingalpha.com...

Furthermore, I located where Moody Investors Service lower Citi's ratings to negative on 2/27/2009.

Moody's (News) Investors Service on Friday cut its ratings on Citigroup (News/Aktienkurs) and Standard&Poor's changed the bank's outlook to negative after news the U.S. government will boost its equity stake in the bank to as much as 36 percent.

www.finanznachrichten.de...

Why would Moody downgrade them to negative if they are showing a potential for a 1st quarter profit?

Is it really possible for Citigroup to have turned it around in such a small time period since receiving TARP money? If so, why haven't other companies done likewise?

Is it possible that Citigroup is using accounting and TARP money to show profits as an illusion that the economy is getting stronger?




Additional Citigroup Research Sources

Top 12 U.S. Banks: From Sleepers to Undiscovered Profit Machines
jutiagroup.com...

Robert Rubin: What Meltdown?

reply to post by jam321


Very interesting indeed.

Do you know what the difference between $8.5 billion and $8.3 billion is?

Just about enough to cover Citigroup's planned bonuses

[edit on 21-3-2009 by Shadowflux]

This remains me of a certain New York investment banker

who was showing great returns when others around him were

showing minor or neg returns ..what was that guys name again ?

Bernie Madoff

This has been an interesting topic to me when I first heard that Citi had posted a profit. After being in the red for quite some time and suddenly posting a profit during a weakened economy, doesn't seem to sit right. I don't think they are pulling a fast one, but simply applying the money which was given into their books. I'm sure many investors saw right through this, but figured it was an okay thing to do, so they just went with it. Until this gets called out by the federal government and/or investors, nothing much is going to change. I wouldn't be surprised if many other companies receiving TARP money will do/have done the same thing.

C Profit Memo

Last week on Squawk Box , one of the brightest minds on the Street said: "I think it's going to come back to haunt them".

Check-out the first 2min - and find out why....

Meredith Whitney - on Financials

GL

Found this to be interesting.

Citigroup said it too lost money for the fifth straight quarter during the last three months of the year. It also said it would restructure itself, creating a new division called Citi Holdings where its most troubled assets would be housed. It's an attempt to build a wall around the healthy parts of the company to persuade investors not to give up on Citigroup.

www.npr.org...

This article is jan 16, 2009. Seems like Citigroup restructured and have all their troubled assets in a separate division. I still don't see how they could have done this and still claim a profit for Jan. unless they are totally ignoring the troubled assets.

reply to post by IKnowNothing

I don't think they are pulling a fast one, but simply applying the money which was given into their books.

Could be a very good explanation and I do expect other companies to follow suit if it works well for citigroup.

reply to post by jam321


Something about "cooking the books" comes to mind.

It could be a move to create a false sense of security to the public and its investors. If they portray an image of being one of the largest credit agencies that is succeeding in the sinking economy, more people will invest in their business.

Ultimately, those investors will learn the hard way on how Citigroup cheated them and will still fail.

Citigroup may have gained profit

But the reality is that [ticker symbol: C ] has lost the confidence of Main street.
... and this lack of confidence and trust is fast spreading to all of 'Wall' street, stocks, bonds, etc.


in Conneticut, there are even tours for the concerned-&-huddled-masses to drive-by the mansions of AIG execs.


ADD:

Peasant Bus Tour of AIG Mansions | WallStreetOasis.com

To celebrate the passage of the Populist Rage Tax, a bus tour has ... angry
peasants through the loop of mansions owned by AIG executives, ...
www.businessinsider.com... ...
www.wallstreetoasis.com...

[edit on 22-3-2009 by St Udio]

Sure, Citi is on track for profit.

Operating profit, that is. EBIT. That's what the "leaked" memo was talking about. It says so right there in the NYPost article in the OP... "Citi has been operating at a profit," and "earnings before taxes and one time charges."

I love the quote found in one particular article about EBIT.

EBIT should not be used to evaluate a company in isolation. Even though a heavily leveraged company may appear profitable using EBIT, in actuality, it may be losing money when interest on its significant debt load is taken into account. Taxation can also have such a significant effect on the profitibility of a company that a seemingly promising company may be a poor investment choice if only the EBIT is considered.

Now once C has to figure in taxes, interest payments on its debt, writedowns, amortization, and so on...well, who knows what their actual profit will be.

Yes, it is true that it so far before EBIT, but IMO just because they are even claiming a profit is amazing within itself.

Like others have posted, many people have lost faith in them.

In my opinion, I think they are. That companies dead in the water so to speak. Its prime for nationalization. I belive they're profits are "legit"; now with that being said, they're are many ways to make things seem that way, which is what I'm sure they are doing.

Citi group led us to our gains a few week in the market...but how long will it last? If I remember correctly, they said that it was "estimates" that they would turn a proffit. But how much of that is true?

Think about it: they can use that bailout to pay off some of the debt that's been called in, but, what happens about the rest; or, if there is more hidden debt? We can't really say.

I think its all smoke and mirrors. I've thought about buying this company, but the more I see, the more I dislike...especially if its nationalized. And like anachryon says, its all before taxes. All that glitters is not gold...