In the expectations game, Citigroup (NYSE: C) $2.5 billion loss is great news for Wall Street. Bloomberg News reports that the analysts it surveyed expected a $3.67 billion loss, or 54 cents a share -- so Citi's results were $1.2 billion better than expected. But there were wide variations on what analysts expected Citi to lose -- from 51 cents to 67 cents.
This reminds me of the story of the boy who comes home from school to tell his mother about a grade he got on a test. Rather than bow his head in shame, he walks into the kitchen with head held high and a big smile on his face. And he announces: "Great news mom! I got a 70!"
The key reason for Citi's loss is the $7 billion in credit-related write-downs it took. These included reductions in the stated value of its subprime mortgage exposure and its investments in monoline insurance companies including Ambac Financial Group Inc. (NYSE: ABK) after they lost their AAA credit ratings. Analysts expected write-downs as high as $12 billion.
What will Citi do to start making money? It plans to cut $15 billion in costs in the next two to three years-- It canned 6,000 people in the quarter -- it will sell $400 billion in what CEO Vikram Pandit calls "legacy assets" and it will strive for 9% revenue growth.
Meanwhile, Citi has had some luck strengthening its capital base. It raised $13 billion in common and preferred stock during the second quarter which left it with a strong capital position -- a Tier 1 capital ratio of 8.7% -- well above its 7.5% target.
So is the worst over for Citi? Some think so -- its shares are up 10% in pre-market trading.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
7-18-2008 @ 1:59PM
alan said...
I think it's just great !!!!!! The Board and top management should pat themselves on the back, they only LOST $2.5 BIL. this time
Hey, give these guys a special bonus, I think they will lose even less in 3Q. Can't believe that people are dancing in the street over trhis.
GEE, BY YEAR END THEY COULD PILE UP SIX CONSECUTIVE QUARTERLY LOSSES. IS THAT A CORPORATE RECORD ?
7-18-2008 @ 5:51PM
Jerry Nemiroff said...
You were way too negative before earnings were announced. You were also way too critical of Pandit. The poor guy was willing to take a job nobody even wanted. He inherited one big mess. Thank you Chuck Prince (and Sandy Weill for putting Prince in charge.) I think he did a darn good job all things considered. He deserves a lot of credit
Your panning the stock at $15 looks to be a bad call by you. Why did you continue to hold your shares if you felt so negative about it all?