Stocks soared Tuesday after Citi Chief Executive Vikram Pandit said the bank was profitable in the first two months of this year.
Citi is arguably the nation's sickest large bank, so any sign it can produce real earnings in this economic climate bolsters confidence. What's more, if Citi is on the road to profitability, there is a greater chance the government's bank-sector revival plan involving stress tests and possible equity injections will get financial firms through the downturn.
So it is worth parsing Mr. Pandit's comments. "We are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007," he said in a memo to employees Monday. A Citi spokeswoman said Mr. Pandit's measure of profits was net income, according to generally accepted accounting principles. In other words, Citi was profitable even after all its expenses, including write-downs and provisions for credit losses in the period, which are expected to be large.
Investors, however, should treat the profit announcement carefully. First, Citi has assessed profitability for an arbitrary time period. Often banks don't know their true expenses until the end of a quarter. And the two-month profit is hard to square with analyst expectations that Citi will lose 32 cents a share in the first quarter, according to Thomson Financial.
Citi is arguably the nation's sickest large bank, so any sign it can produce real earnings in this economic climate bolsters confidence. What's more, if Citi is on the road to profitability, there is a greater chance the government's bank-sector revival plan involving stress tests and possible equity injections will get financial firms through the downturn.
So it is worth parsing Mr. Pandit's comments. "We are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007," he said in a memo to employees Monday. A Citi spokeswoman said Mr. Pandit's measure of profits was net income, according to generally accepted accounting principles. In other words, Citi was profitable even after all its expenses, including write-downs and provisions for credit losses in the period, which are expected to be large.
Investors, however, should treat the profit announcement carefully. First, Citi has assessed profitability for an arbitrary time period. Often banks don't know their true expenses until the end of a quarter. And the two-month profit is hard to square with analyst expectations that Citi will lose 32 cents a share in the first quarter, according to Thomson Financial.
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