Citigroup shares have lost some 40% since late last week, as reality has crept back into the markets. Early Friday morning, Citigroup reported first-quarter results. Citigroup shares shot up in pre-market trading and continued to rise when markets opened. The market was elated that Citigroup like Wells, JP, and Goose before them had basically fudged their earnings to show a surprising profit.
Investors went Beatlemania, because Citigroup had been expected to report a net loss of .34 cents a share. Apparently, the reason Citigroup lost 18 cents a share even though it "made" a "profit" of $1.59 billion owed to the albatross around its neck of a 24-cent-a-share charge for revising the conversion price on its preferred stock. So there are "Real Results" and "Illusionary Results" now that banks can report? I have reported to you that Wells, JP, and even GS have fudged their earnings so far this period. Please add Citigroup, and Bank Of America to that list.
OK- Real Results are tedious stuff like money in the bank and fraudulent ATM fees, while Illusionary Results are write downs, credit loss provisions, good will impairments, and bank savior - Mark To Market? That is correct...the market before today only looked at Real Results, but Citigroup and BOFA have alerted to everyone that the banks relatively speaking are crap investments, and need massive amounts of future capital just to cover their losses.
The only reason Citigroup even rallied from a buck to over 4, was the inherent Arbitrage opportunity that existed over the preferred conversion. There was a delay in regulators approving the potential conversion, so the shorts got nervous.
But going back to Citigroup, their earnings were pretty evenly composed of "Real and Illusionary Results". The only reason the accountants are employed at Citigroup is to take Illusionary Earnings and make them Real. Who do you believe anymore? I wouldn't even put it past the government and Geithner to say the following - "All of the banks have passed the Stress Tests based on their reporting". I really wouldn't at this moment as most of America will be glued to another 14 Run Inning at New Yankee Stadium.
The pressure on these banks will not subside any time soon, and it will quickly become clear, probably during the summer, which banks will be able to earn their way out of trouble (NONE) and which ones won't (ALL OF THEM). Things are coming to a head for Citigroup and others, but is the government and the markets prepared?
I understand what Obama is going through. He made a lot of promises, but once he got into the White House, he was frozen to do anything of value.
ReplyDeleteThat is not an excuse for inaction, I am afraid. What he needs to do is a surgical nationaliszation of the banking system, which is going to happen...
ReplyDeleteWhy would a company suddenly become fiscally responsible when they can screw the taxpayer, with the President's full approval? The pall that hangs over the markets owes as much of it's impetus to the so-called rescue as it does to the CDO fiasco. Apply this to our local transportation corporation, the MTA. Keep the overpaid executives, bonuses and perks and make a serious money grab for more straphanger cash whenever the mood strikes.
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