It's Alive!

Citigroup, leader of the walking dead, reports a notable operating profit:

In a letter sent to employees Monday, Citi Chief Executive Vikram Pandit said the bank had an operating profit of $8.3 billion before taxes and special items through February — its best performance since the third quarter of 2007.

Obviously, that number is before credit-related write-offs, but still - considering the ghastly business environment, this is clearly good news, and stocks are up as a result.

Here is more on the Citi internal memo unearthed by Reuters.

And we will put this in the "No Kidding" file:

Federal Reserve Chairman Ben Bernanke further stoked the market as he called for a revamp of the country's financial regulatory system. Speaking before the Council of Foreign Relations, Bernanke said "too big to fail" companies must be subject to more rigorous supervision to prevent them from taking on excessive risk. Bernanke's remarks come as the Obama administration and Congress begin to devise their overhaul strategies.

Let's go back to the days when the staid commercial banks paid minor-league salaries and were training grounds for the investment banks and private money managers.  Allowing banks to operate as too big to fail hedge funds with government guarantees has not worked so well.  And while we are at it, Fannie and Freddie are artifacts from the pre-interstate banking, pre-securitization days when having a national entity promoting mortgage standardization may have made sense.  Put them on a track headed towards full privatization or get rid of them.

THE POWER OF POSITIVE WISHFUL THINKING:  Although it will only be obvious in retrospect, someday we have to hit the market bottom and something ought to catalyze a rebound.  How great would it be if this is the day and Citi is the spark?  Well, except for those who want Obama to fail.  (KIDDING!)

[END OF FEAR]

Comments

[Tom Bowler]

Citi Chief Executive Vikram Pandit said the bank had an operating profit of $8.3 billion before taxes and special items through February...

I think Obama has already said he has a remedy for that.

[kim]

climateaudit.org several weeks ago has a wonderful mad scientist graphic of 'It is alive!'.
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[kim]

Profits greater than projected is hardly going to allay the deep distrust that worldwide capital holds for Obama and his policies. I see it raining dead cats.
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[steve sturm]

the 'something' that could catalyze a rebound may be the realization that everybody has over-reacted over the past months.

Paper losses are not cash flow losses, just as a relative handful of problem mortgages and credit card defaults should not dry up the consumer and housing credit markets and so on. Dealing with the problems, while troublesome, ought not have caused everybody to go chicken little.

[clarice]

What they have not over reacted to, however, is the stunning incompetence of Turbo and Zero.

[kim]

The consumer has lost confidence, which will not return until his perception of wealth returns, which won't be soon. If the consumer has lost confidence, earnings will collapse. If earnings collapse, wealth won't return. This will not be a permanent situation, just a long term one, unless Obama and Gang keep taking advantage of the crisis.
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[kim]

I just don't see spending from people who've had their net worth cut in half in seconds, well, months. Easy credit was a chimera, and people are a little more clear sighted, now. Even if credit is extended, people will be very hesitant to use it. Most of our economy has been built on wants not needs, and people struggling to take care of needs have less desire for wants.
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[steve sturm]

Kim: a quibble, we don't need the perception of wealth to return as much as we need the perception of future wealth to return for people to get comfortable spending again as well as reassure employers that they don't need to keep reducing staff to stay ahead of the declining markets.

[MayBee]

we don't need the perception of wealth to return as much as we need the perception of future wealth

True to some extent, but to many the future is now. People who lost money in their college savings accounts who now are sending their kids to college. People who have lost money in their homes who now have to sell them. People who are retiring now. There are a lot of people who were depending on the future to be 2009 or so.

[kim]

And the future is now hostage to manipulation of crises. I don't see the confidence returning for another generation. That is not to say we'll be in the dumps for twenty years, but a lot of people have seen their retirement dreams fade, and I'm not just talking those near retirement.
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[Fresh Air]

Begging everyone's pardon, but why is the CEO of a massively complicated entity releasing pseudo, unaudited, two-month earnings results? Doesn't this strike you as a bit odd, if not desperately manipulative?

[DebinNC]

Sen. Shelby's talk of "walking dead" and "close 'em" certainly got their attention. How can Citi return to the trough a fourth time if the ranking member of the SFC keeps calling you "mummies".

[Old Lurker]

I think the prospect of improvement in future wealth is an important ingredient of recovery (certainly as to consumption). In normal times, one could stop just at that comment in predicting the turnaround.

A troubling new calculation in creating future wealth this time around is the cost of doing business in the future.

But today the truly unique dimension of concern is whether our tradition of protecting our private property (that future wealth) from confiscation for the greater good is central to luring investor capital out from under the rocks.

On both fronts the jury is still out.

[RichatUF]

FA-

Doesn't this strike you as a bit odd, if not desperately manipulative?

Wonder if he might have gone afoul of Sarbanes-Oxlex Reg. G:

Disclosure Requirements

Under Regulation G, any public disclosure of material information that includes a non-GAAP financial measure must include:

a presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP; and
a quantitative reconciliation (by schedule or other clearly understandable method) detailing the differences between the non-GAAP financial measure presented and the most comparable financial measure or measures calculated in accordance with GAAP.
With forward-looking non-GAAP financial measures:

if the comparable GAAP measure is not available on a prospective basis, a company must disclose that fact and provide any reconciliation information that is available without unreasonable effort; and
the company must identify the unavailable information and disclose its probable significance.

[bad]

I just don't see spending from people who've had their net worth cut in half in seconds, well, months.

Mr. bad and I are noticing an interesting trend. We are receiving phone calls from businesses where we've made big purchases over the past FIVE years.

Furniture, electronics, car dealerships... There are the usual promises of deep discounts and extraordinary service, yada yada.

Each time I tell them we want very much to purchase their product but the president's economic policies are causing us to hang on to disposable income instead.

[bad]

DOH didn't finish.

Each time the salesperson, replies that they are hearing a that a lot.

[Rick Ballard]

Rich,

I'll bet there's a remarkable silence concerning Sarbox on this one. I suppose that an attempt could be made to differentiate between a "letter to employees" and "public disclosure". Maybe there was a "burn before reading" secrecy codicil on the letter?

I'm rather curious about what the "special items" might entail. Big Z doubled their provision for credit losses as of 1/1/09 to $2.5B per month. Is the anticipated loss of $5B for two months within the $8.3 or does it constitute a "special item"? The change in CVA (Credit Valuation Adjustment) discussed beginning on page 18 of the 10-K may have something to do with this announcement. The blowout in the Citi CDS on Monday would have a definite impact wrt the "new" model.

[anon]

The regulators were all over Citi and Fannie and Freddie and they did nothing. That's because the politicians stonewalled everything and the companies ignored the regulators.

[rhodeymark]

I read an interesting take this morning. Fellow said that the Government converted their minority position from preferred to common because common has a voting interest in future business where preferred does not, but maintaining a <50% presence keeps the foreign bondholders from demanding that the Government guarantee them as well.
His position is that the Fed taking minority common postions in large stinky entities can help them force the greenbacks out and get precious inflation started.

[cathyf]

...a relative handful of problem mortgages and credit card defaults should not dry up the consumer and housing credit markets...

The "relative handful" is about the past, whereas credit markets are about the future. Or, to put it in a more concrete way, if Obama's policies, and the policies of the majority Democrat Congress, make it significantly more likely that people will default on their obligations, then creditors must factor that into the market.

[Old Lurker]

"...a relative handful of problem mortgages and credit card defaults should not dry up the consumer and housing credit markets..."

UNLESS future lenders fear the Feds will rewrite their future contracts when confronted again with the political reality that borrowers outnumber lenders.

Back under the rock.

[clarice]

Just when I think the whole world is mad, cathyf's nice logical words float by on the screen and I am calm, knowing that there is a point of light out there..(Well,truthfully, I might say that about most of you, but cathyf especially soothes my poor battered brain.)

[steve sturm]

...The "relative handful" is about the past, whereas credit markets are about the future.

Yes, but the markets can (and did) seize up as lenders freaked out thinking that the bad papers meant the entire system was about to crash. How else to explain why 'good' credit had their lines cut, and in the days before the markets started fearing Obama was going to get into the contract-rewriting business?

[TCO]

You RINO faggots got Obama elected by abondoning free markets and going for bailouts. You keep talking about managing the economy as if it were some sort of toy or balloon. Let the market function. Pussy.

[PD]

TCO, you have yet to put up or apologize re: kim's challenge the other day.

[TCO]

I have dealt with kim about ten million times. And I don't have to show her shit. She is the one who needs to defend her fuzzy language about panics and deviations from free markets. Not me.

RINO, lame-o, wussy ass Bush lover. She should be happy with Obama. If I had my way we'd havew Palin anjd Ron Paul kiccking ass and NO FUCKING BAILOUTS

[TCO]

McCain is a deer in the headlights moron. Obama and he are two sides of the same coin. Have fun with your fucked up Republican leadership...that would be better off tied in bags and thrown into the Tiber river.

[boris]

had my way we'd ...

TuCO (the ugly) must be too stupid to realize that real libertarians aren't supposed to force their way on other people.

[boris]

Have fun with your fucked

Have fun with your blow up doll.

[kim]

Heh, I saw you try to show me the market decline as evidence that the panic wasn't stopped. Pitiful.
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[cathyf]

How else to explain why 'good' credit had their lines cut, and in the days before the markets started fearing Obama was going to get into the contract-rewriting business?

It's not just Obama and the contract-rewriting business. Free-market transactions create wealth; socialism destroys wealth. If we have an 11-year-long Great Depression with 25-30% unemployment, then there will be huge numbers of people defaulting on their loans using the good old-fashioned chapter 7 rules.

[Carl Pham]

Mmmm....no, I want Obama and the Democrat aristoi to fail. Miserably, awfully, so crystal-clear hideously that their crypto-20th century Stalinism (both intellectual and economic) is driven by mobs of enraged Americans into the wilderness for the remainder of my lifetime, and half my grandchildrens' as well. I want to see Dodd's head on a pike and Nancy Pelosi weeping into her gruel while huddling against the winter wind in a cardboard shack in Fargo.

I thought we slew this monster in 1991. Apparently, it has more lives than a quantum cat. Almost no amount of short-term pain for the American economy is too much to pay for a redeeming century in which the mere mention of "stimulus package" makes people gag and reach for a weapon. So there. To hell with moderation.

[kim]

Thanks, PD, for your 11:10. At least he's quit lying about me supporting further bailouts, so that's something. It's proof that TCO is capable of finding error in himself. That's actually a tougher task than publicly admitting it, so I'm happy. Now he just has to work on the delusion that Paulson, Bernanke, and Bush ruined the Republicans' chances last fall. He's certainly not alone in that one.
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[kim]

Nice, Carl; I liked the Fargo bit.
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[Brian R. Higgins]

Pretty good discussion until Bush's name came up. I thought I saw him thumb his nose at everybody on the way out the door.