New Day, New Bank, Worse Story

It’s a beautiful day today, and after Goldman and JPMorgan, I don’t feel like diving deep into Citigroup’s earnings release. But judging from the Bloomberg article, it’s a similar story, just not as good.

1. All the good news was in fixed income trading: $4.7 billion in fixed income trading revenues; falling revenues in credit cards, consumer banking, and private client.

2. Assets continue to deteriorate: $5.6 billion in new writedowns in trading accounts; $3.1 billion in charge-offs and reserves for bad credit card debt.

3. Accounting fictions save the day (the new bit): $0.6 billion in losses that don’t have to be classified as other-than-temporary (and therefore affect the income statement) thanks to FASB; $2.5 billion in “profits” because of the fall in the value of Citigroup’s own debt. The theory behind the latter is that Citi could go into the market and buy back all of its distressed debt, which would be cheaper than paying it off at 100 cents on the dollar. Also: $0.4 billion in litigation expenses avoided (previously reserved) and tax benefits from an IRS audit.

Point 3 adds up to $3.5 billion, which dwarfs Citi’s $1.6 billion  profit. Why is everyone so optimistic about banks these days?

By James Kwak

15 thoughts on “New Day, New Bank, Worse Story

  1. Why is everyone so optimistic about banks these days?

    Two words: “pump” and “dump”.

    Here’s the problem: I’ve been sitting at this poker table for over an hour, and I’m still having trouble figuring out who the mark is…


  2. The key to this entire crisis is the difference between unrealized losses and denied losses.

    Unrealized losses are the temporary kind you get when your stock retraces before pushing higher in a bull market.

    Denied losses are the kind you get when you buy at the pinnacle of an asset bubble and HOPE for things to get better.

    The sooner we come out of denial and REALIZE THAT WE HAVE REALIZED LOSSES, the sooner we can get back on our feet and live to fight another day.

  3. Whew–what a relief.

    “Why is everyone so optimistic about banks these days?”

    Cuz we’re hoping for the best. That’s the plan.

  4. What amazes me is that after all the sturm and drang over the last year that we are allowing these major banks to publish obviously cooked earnings reports.

    Are they all in competition for the Financial Booker Award ?

    Actually, I think big bonuses are in order for the accountants who came up with these reports. They remind me of the Southern lawyer who was so good he could get a charge of buggery reduced to following too close.

  5. Can someone PLEASE, PLEASE put Citigroup out of its misery? The fact that Citi needs additional government help and needs to be nationalized is the worst kept secret in finance. Think of it this way: name another bank/financial institution that REQUIRED (at it’s own request) government backing? BofA could argue that it was forced to complete its marriage with Merrill which caused it to request additional funding. But Fannie Mae, Freddie Mac, AIG, Bear Stearns, Lehman are all wards of the state (or dead). Wamu, Wachovia were seized and sold to rivals.

    Am I missing something here? Is there another bank (other than BofA) that has voluntarily taken TARP money and is not bankrupt or majority owned by the US Government?

  6. “Why is everyone so optimistic about banks these days?”

    Why should anyone care other than the investors? Oh, I forgot. The Paulson-Geithner team have mortgaged our children’s future to invest in insolvent banks.

  7. Well said.

    This whole banking situation is no longer a moral hazard – it is just amoral.

  8. And as we all know, when you don’t know who the “sucker” is at the poker table is….it’s you.


  9. I guess the really alarming thing, is that the government and bankers actually think we are all this nonsense. The fact that THEY think we are believing this is alarming. If they think we are this foolish, we may REALLY be in trouble, deep trouble.


  10. how dare you say a thing like that James? Didn’t you get the memo Geithner sent about CLAPPING LOUDER????



  11. The thin smoke is clearing. The primordial ooze is thickening – Paul Krugman’s Erin go Brough piece today was a warning shot over the bow. He’s not screaming (Larry – the idiot- Kudlow), he’s not ranting (Jim -the clown- Cramer),…. Paul is telling them, one more time, that they are running out of time. You can sink below the baseline, and he knows that is exactly where we are headed.

    Paul says – Don’t look now but that light you thought you saw at the end of the tunnel is not sunlight, it is a headlight, there is no time to turn around and run back out the way you came in. Best to just bend over and kiss your arse goodbye.

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