Tuesday, October 23, 2012

Citigroup Earnings Review: Masquerading as Financial Institution

Citigroup reported QE September 2012 financial results on October 15

CEO Vikram Pandit continues his incredible legacy of proving he is neither an investment banker nor a traditional banker, yet is steward of almost $2 trillion in assets. Never has so much been so mismanaged, with the exception of Bank of America. Financial position is stable but financial performance is downtrending. Capital is adequate. Risk management has been trumped by incompetence. Citigroup is in the Trillion Dollar Assets Club with JPMorgan, Bank of America, and Wells Fargo.

Another colossal error in judgement resulted in a $2.9 billion after-tax loss. That would be the partial sale and impairment of the Morgan Stanley Smith Barney (MSSB) joint venture, which wiped out the quarterly financial results. Only a kindred, i.e. depraved, soul would have entered into a partnership with that den of iniquity.

At QE 9-30-12, I have rated Citigroup an "E+" on a scale of A+ to G-. This is a downgrade from "D-" at the prior QE 6-30-12. The median rating is "D" and the average rating at QE 6-30-12 was "C". Financial position is weighted more than financial performance. The QE 6-30-12 bank ratings review is here.

Vikram Pandit, Citi’s Chief Executive Officer, said: "Our core businesses showed momentum during the quarter as we increased lending and generated higher operating revenues. These earnings highlight the strength of Citicorp and its diversification by product and region. For the third straight quarter, we had positive operating leverage in each of our three core businesses. Citigroup in total also had positive operating leverage as Citi Holdings had a smaller impact on our overall results."

"Last month’s price agreement on MSSB has given us more certainty on our exit from that business and added to the reduction of Citi Holdings, which is now only 9% of our balance sheet. We generated additional capital during the quarter, and our Tier 1 Common Ratio was estimated at 8.6% on a Basel III basis at the end of the period. We are managing risk very carefully given global economic conditions so we can continue to grow our businesses safely and soundly,” concluded Mr. Pandit.


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