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.
Administrator says:
Charles Hugh Smith:
You Can’t Fool Mother Nature For Long: Financial Markets
January 17, 2012 (Mobile version)
Constant State and Central Bank intervention and manipulation is not the foundation of a free, transparent market–it is perception management in service of Elite control and looting.
You can fool Mother Nature for awhile, but not over the long-term. That’s the theme of the week. Every day I will take a look at a segment of American life that is currently based on the supposition that we can dodge reality essentially forever.
Correspondent Chad D. recently summarized the profound lack of authenticity in the American experience:
Have you noticed that Americans often don’t experience REAL things: REAL food, Real water, REAL relationships, REAL money, REAL freedom, REAL peace of mind, REAL living, REAL leaders, etc. I know you’ve gotten flack for your extensive use of “simulacrum,” but it’s so true. Most Americans have no idea what REAL is.
Thank you, Chad. Let’s ask just how real our financial markets really are. We can start our inquiry with this thought experiment: where would the stock, bond and commodity markets be if all Central State and Central Bank intervention and manipulation were prohibited?
Where would the stock market be if the Plunge Protection Team (PPT) didn’t manipulate the stock market via massive purchases of ES S&P 500 futures contracts? These massive purchases are always executed in sparsely traded pre-markets, maximizing the ramp-up effect, which then triggers momentum chasing buys from high-frequency trading machines.
Voila, ramp-and-camp Mondays, which studies have found account for the majority of the market’s gains last year.
Remove ramp-and-camp Mondays triggered by massive PPT futures purchases, and where would the unmanipulated market be?
What if unemployment statistics were unmanipulated, i.e. the number of people in the workforce didn’t magically decline by millions every year? What if the bogus “Birth-Death Model” was banned as mere fantasy job creation? Where would the unmanipulated market be then?
Where would bond market yields be if the Federal Reserve were unable to print money to buy hundreds of billions of dollars of mortgage and Treasury bonds?
We can also shed light on the difference between a real free market and a simulacrum of a “free market” by asking: does anyone seriously believe the stock market would be higher if all market intervention and manipulation by the Central State and Central Bank (and their proxies) ceased?
We can extend this by asking: what if public companies were banned from issuing “beat by a penny” pro forma earnings and other accounting tricks?
What if the “shadow banking system” was outlawed, and all assets and liabilities were transparent? Does anyone seriously believe the fragile financial system that depends on shadow banking for its dodges and profits would survive transparency and marked-to-market accounting?
Americans have no real experience of free, transparent financial markets or of rigorously transparent accounting by their Central State, the Federal Reserve, public corporations or the financial sector. They have been presented facsimiles of accurate statistics and accounting, and simulacra of transparent markets.
Average Americans are responding to this systemic destruction of truth and fact by exiting the stock market–and that is just the start. As I described in When Belief in the System Fades (March 12, 2008), the Elites benefitting from the Status Quo depend on the active participation and complicity of millions of citizens.
When those participants’ faith in the Status Quo’s fairness and transparency declines below a critical threshold, then they withdraw or limit their participation, and the system enters a self-reinforcing death spiral.
To go back to the key question: does anyone seriously believe the stock market would be this high if the Central State and Bank and their proxies weren’t constantly intervening in the market and manipulating data?
Intervening in supposedly “free markets” for the purposes of perception management and political spin (“everything’s great because the market is up!”) is ultimately an attempt to fool Mother Nature. The Powers That Be have succeeded in manipulating markets since 2007, but reality (Mother Nature) eventually shreds the phony facade of perception management.
As the European attempts to fool Mother Nature (i.e. unmanipulated markets that are free to discover price and price risk) disintegrate, does anyone seriously think the PPT can prop up the U.S. stock market with its usual pre-market manipulations?
When Mother Nature reasserts reality, the frauds, scams and facades will shred like tissue in a hurricane. Maybe that process of reverting to reality is finally about to begin.
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17th January 2012 at 9:29 am
Administrator says:
Citigroup’s auditor:
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17th January 2012 at 10:16 am
Mary Malone says:
Aren’t there laws that require banks to report accurate information?
Oh, that’s right. I forgot.
Laws don’t apply to TBTF.
Laws are only for the little people. Too bad. I’d like to kite some checks and rob a bank.
But I’d look awful in leg irons and orange jumpsuit.
No fun being TSTF (Too Small to Fail)
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17th January 2012 at 11:37 am
AWD says:
Citicorp lies
Criminal Politicians lie
Stock Brokers lie
Banksters lie
The President lies
Fed.gov.gestapo lies
government statistics are pure lies
health insurance companies lie
State and local governments lie
Lawyers make a living lying
Accountants lie
the Federal Reserve and Bernake lie
little Timmy Geitner lies
Unions and union bosses lie
etc. etc. etc.
Great post, Americans don’t even know whats real anymore. Well no shit, everyone lies.
Morrisey had a song about it:
Glamorous Glue Lyrics:
First day with the joy you find,
Everyone lies.
First day with the joy you find,
Everyone lies,
Nobody minds,
Everyone lies.
Where is the man you respect?
And where is the woman you love?
Third week with the joy you find,
Everything dies.
We won’t vote Conservative,
Because we never have.”
Everyone lies, everyone lies,
Where is the man you respect?
And where is the woman you love?
Everything of worth,
On earth,
Is there to share
I used to dream and I used to vow,
I wouldn’t dream of it now.
We look to Los Angeles
For the language we use
London is dead
I’m too much in love,
I know,
I’ll go,
Empty hand
From the land
??
When everyone lies, nothing is real and it’s all pile a bullshit. Pretty accurate assessment of everything.
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17th January 2012 at 2:02 pm
Administrator says:
AWD
Some accountants lie.
Others get fired for refusing to lie.
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17th January 2012 at 2:15 pm
Mary Malone says:
Admin: “Others get fired for refusing to lie”
I read an interview with a top recruiter awhile ago. He was a senior exec – believe CFO of a company. The CEO wanted him to lie about the numbers. He refused and was pushed out or fired. Can’t remember which.
He landed on his feet, working for a large recruiting firm. Said because of his own experience, he was able to discern when a candidate left their employer – for the same reasons.
He said it is an epidemic. To the point where the only people who last in CFO or senior financial positions are the people who lie – or look the other way.
Is that your experience too?
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17th January 2012 at 3:11 pm
Administrator says:
Mary
I refused to fake the projections at IKEA for the numbskull CEO.
Guess what happened next?
I covered it in this article:
http://www.theburningplatform.com/?p=10638
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17th January 2012 at 3:16 pm
Mary Malone says:
@ Admin: What an incredible story.
Thanks for sharing the highs and the low of your IKEA career.
I had very similar experiences. Work and life has changed since the 80′s hasn’t it?
I’m not sure if it was my age, or the times. But work used to be a blast. I was usually the only woman on staff. But I worked hard, kept my nose clean and made sure the guys knew I wouldn’t report them to HR if they told an off-color joke.
I worked in media – political correctness just didn’t exist. So many stories similar to yours.
We’re lucky. People who entered the workforce from 1992 til today can’t really say or do anything. It’s all off limits – thanks to corporate diversity.
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17th January 2012 at 12:34 am
TeresaE says:
MM, we aren’t really TSTF (Too Small to Fail), cause the decks are stacked so that the middle does nothing but fail.
We are really TSTS (Too Small to Succeed). Alone, our businesses and standards of living are no match for the 1%’ers and the Fortune 1000. But as a group we “hurt” them and their future profits, so they seek to destroy us.
And they are succeeding. Fantastically. While we fail en masse.
TSTS, or, as the 1%’ers call us, collateral damage.
Citibank is but one in a long line of thieves.
Fiat on.
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17th January 2012 at 3:25 pm