And it only took a half trillion dollars of the taxpayer's money and an emergency SEC ruling that restricted trading in the big banks to create another important option expiration rally for the Wall Street trading houses.
Citi Posts Smaller-Than-Estimated Loss on Writedown
By Josh Fineman and Bradley Keoun
July 18 (Bloomberg) -- Citigroup Inc. reported a smaller- than-estimated loss by reducing mortgage-bond writedowns, eliminating jobs and borrowing money at lower rates. (Two of those three positives are courtesy of the Fed's balance sheet coverage for Citi - Jesse)
Citigroup, the biggest U.S. bank by assets, rose in New York trading after the company said its second-quarter net loss was $2.5 billion, or 54 cents a share, because of $12 billion in writedowns and increased bad-loan reserves. Analysts estimated the New York-based bank's loss at $3.67 billion.
Led by Chief Executive Officer Vikram Pandit, Citigroup is the third major U.S. bank to beat analysts' predictions this week, after JPMorgan Chase & Co. and Wells Fargo & Co. Merrill Lynch & Co.'s results yesterday fell short of Wall Street's estimates. Pandit, who took over in December, reduced assets by about $67 billion during the quarter, making progress on the $400 billion he has targeted.
``Conditions have eased a little bit and at the same time they have been able to grow their top line,'' William Fitzpatrick, an equity analyst at Optique Capital Management in Milwaukee, which manages $1.4 billion, said in a Bloomberg Television interview. ``They haven't had a lot of clients run out the door. They have been able to maintain relationships. Now it's just a matter of being more profitable.'' (Details, details - Jesse)
Writedowns for subprime-related assets and debt linked to bond insurers totaled $7.2 billion. The bank's credit costs increased $4.5 billion from the second quarter of 2007, mainly because of bad consumer loans in North America and the company's credit-card business.
Writedown Estimate
Credit Suisse Group analyst Susan Roth Katzke predicted in a June 24 note that the company would have as much as $10 billion of writedowns.
Shares of the company rose to $19.29 in New York trading, from $17.97 at the close on the New York Stock Exchange yesterday.
Second-quarter revenue dropped 29 percent to $18.7 billion, compared with the average estimate of $17.3 billion among analysts surveyed by Bloomberg. Earnings in the same quarter last year were $6.23 billion, or $1.24 a share.
The U.S. consumer unit, which includes retail banking and loans to individuals and small businesses, had revenue of $7.89 billion, virtually unchanged from a year earlier. The global cards business rose 3 percent to $5.47 billion.
Tier 1 Ratio
Citigroup's Tier 1 capital ratio, a measure regulators use to monitor a bank's ability to withstand loan losses, rose to 8.7 percent at the end of the quarter from 7.7 percent in the first quarter and 7.1 percent at the end of 2007. The minimum for a ``well-capitalized'' rating from U.S. regulators is 6 percent. Citigroup sets its own target at 7.5 percent, partly to assure its AA- rating from Standard & Poor's. (One way to increase that ratio is to take the 'bad stuff' off the balance sheet and let Benny carry it for you - Jesse)
Seven interest-rate cuts by the Federal Reserve in the past year have reduced the bank's borrowing costs and allowed it to trim the rates it pays depositors.
Revenue at Citigroup's corporate and investment bank plunged 71 percent to $2.94 billion. The wealth management division, which includes the Smith Barney brokerage, gained 4 percent to $3.32 billion.
Pandit, 51, put former Morgan Stanley colleague John Havens in charge of trading and investment banking, moved U.S. consumer head Steve Freiberg to oversee a new credit-card division and recruited former Wells Fargo executive Terri Dial to oversee consumer banking in the U.S....