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Citigroup: The road to Damnation through One Time Charges

October 16, 2012

A month ago we had mentioned that the effect of Citigroup carrying Smith Barney at funny valuation on its books would be felt this quarter.  Yesterday, the impact was disclosed in the 3Q earnings- the bill was $4.7 billion.  But did any one care?  No, it was hidden neatly with “one time charges” which so-called financial analysts do not bother about.  There were other items of one-time charges too.  Citi’s stock rallied 5%, and gave a boost to the whole financial sector.  It was through a series on one time charges between 2007 and 2008 that the bank went with a begging bowl to the government for a bailout.  Clearly, the lessons of “one time charges”, particularly in the banking sector, have not been learnt.

It has been a long time since Citi’s earnings reflected the difference between its revenues and costs.  Now, it is more an accounting decision. Circus idiots who believe this fraud will get canned the same way they got canned in 2008.  But the rally in Citi’s stock price over the last 3 months (and more particularly yesterday) shows that the supply of greater fools has not run out for Citi.  Of course, Chairman Bernanke, (who we had said sometime earlier fits Einstein’s definition of insanity

(https://crediteye.wordpress.com/2011/08/05/bernanke-and-einsteins-definition-of-insanity/),  also had a hand in the rally of Citi’s stock to lala land.  But despite this rally, Citi is still trading at a 40% discount to book.  It shows, than even in this frenzy, the market does not fully buy the book-keeping of Vikram Pandit’s boys.

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From → Credit Analysis

2 Comments
  1. How are you reading Vikram Pandit’s resignation, how will it effect Citi and it’s Shareholders ?

  2. I think Citi is just unmanageable (as are BankAm and JP Morgan). It does not matter how they rearrange the deck chairs on the Titantic. They need to shrink their balance sheet and focus on net interest income (as opposed to trading income). All this will also bring down comp costs. Only then shareholders can hope for anything

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