Think about this for a second. Citigroup lost money in the 4th quarter without resorting to accounting fraud and generating $1.5 billion of income through a journal entry. Here is a bank that can borrow at 0% from the Federal Reserve and they still can’t make a profit. How fucked up can they be? Imagine if they actually were forced to report their books honestly. They would probably lose $10 billion.
Now a simple question. If it was clear that the economy is entering recession, would you expect losses on your credit card and mortage portfolio to go up or down? Instead of preparing for a difficult year ahead, these bozos create a fake profit by telling the world their future losses will be lower. I’m sure they are right. They’ve never miscalculated risk before. Right?
Citigroup Misses Big On Top And Bottom Line: Earnings Negative Absent Loan Loss Release
Submitted by Tyler Durden on 01/17/2012 08:13 -0500
Following last week’s Easter egg by JPMorgan, the misses by financials continue, with Citi crapping the bed following a big miss in both top and bottom line after reporting $17.2 billion and $0.38 EPS on expectations of $18.5 billion and $0.52 per share. The biggest hit to the top line was the DVA adjustment courtesy of tightening CDS spreads, which while adding to top and bottom line in Q3, took out $1.9 billion in Q4 – of course like everything else it was also priced in. And while we are confident the full earnings presentation will be a labyrinth of loss covering, the first thing to realize is that absent a $1.5 billion in loan loss reserve releases, the bank would have reported negative net income, which was $1.364 billion pretax. Yet there is no way to explain the absolute bloodbath in the Securities and Banking group, which saw revenues implode by 53% from $6.7 billion to $3.2 billion Y/Y, and down 10% Q/Q. Notably, Lending revenues down 84% from $1 billion to $164 million. RIP Carry Trade.
Some highlights from the earnings report, pre-spun for public consumption:
- Fourth Quarter Revenues of $17.2 Billion Down 7% from the Prior Year Period
- Fourth Quarter Net Credit Losses Declined 40% from the Prior Year Period to $4.1 Billion
- Full Year 2011 Net Income of $11.3 Billion up 6% from $10.6 Billion in 2010
- Full Year 2011 Revenues of $78.4 Billion Compared to $86.6 Billion in 2010 Driven by $6.4 Billion Decline in Citi Holdings Revenues
- Citicorp Loans of $465.4 Billion Grew 14% versus Prior Year
- Citi Holdings Loans of $181.8 Billion Declined 25% versus Prior Year
- Full Year 2011 Net Credit Losses of $20.0 Billion Compared to $30.9 Billion in 2010
- Loan Loss Reserve Release of $1.5 Billion in Fourth Quarter, Down 35% from the Prior Year Period
- Tier 1 Common of $115.1 Billion, Tier 1 Common Ratio Increased to 11.8%
- Year-over-Year, Book Value Per Share up 8% to $60.78, Tangible Book Value Per Share(2) up 12% to $49.81
Half Of Citi Pretax Income Over Past Two Years Comes From Loan Loss Reserve Releases
Submitted by Tyler Durden on 01/17/2012 08:43 -0500
Wonder why nobody trusts bank numbers, and why US financial institutions trade at some fraction of book value? The chart below should explain a big part of it. As can be quite vividly seen, of the $28 billion in pre-tax net income from continuing operations “generated” over the past two years, exactly half, or $14 billion, has been due from a simply accounting trick, namely the release of loan loss reserves, which have been positive for 8 quarters in a row, and which in the just completed quarter amounted to more than the actual pretax number, confirming EPS would have been negative absent accounting trickery (source). One wonders what happens to Citi Net Income once the world openly re-enters a recession, and releases have to become builds again… And for those who enjoy the myth of reported numbers, and are trying to reconcile the resurgence in bank stocks with abysmal earnings, yet wish to understand why Citi has let go the well known Rohit Bansal, and Chris Yanney, who headed the bank’s distressed and HY trading respectively, below is also a chart showing the dramatic collapse in the bank’s Securities and Banking revenue which just came at the lowest in the past two years, with Norta American top line in particular being decimated.