Citigroup's Profit Greeted With Skepticism

Ending a five-quarter losing streak, Citigroup reported profits of $1.6 billion during the first three months of 2009. But there were questions about how the banking giant achieved the positive results.

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel. The Obama administration is hard at work playing doctor to the nation's biggest banks. It's administering stress tests to gauge the health of their balance sheets. Among the banks widely thought to have problems is Citigroup. So the announcement this morning that the company actually made a profit during the first three months of the year was received as good news on Wall Street. Some saw it as one more sign that the U.S. banking sector is finally rebounding. But shares of the company soon began to fall.

As NPR's Jim Zarroli reports, investors started to question whether the strong results could last.

JIM ZARROLI: The banking crisis has been one of the big reasons the U.S. economy is in so much trouble right now. And so investors have been anxiously awaiting the parade of earnings announcement by major banks this month. JP Morgan Chase, Wells Fargo and Goldman Sachs all surprised on the upside, but the picture from Citigroup was more nuanced.

Mr. JAMES ELLMAN (President, Seacliff Capital): The Citi quarter could be characterized as having something for both the bulls and for the bears.

ZARROLI: James Ellman is president of the hedge fund company SeaView Capital. He notes that Citigroup's revenues doubled compared to a year ago and overall it made a profit of $1.6 billion. Profits were up in every major division over the disastrous last three months of 2008. Ellman says numbers like these suggest the worst may be behind the big banks.

Mr. ELLMAN: What we're seeing so far is that the economy is no longer - appears to be falling off a cliff as it seemed to have been a few months back. It is clearly still deteriorating. There are some banks that are clearly quite weak and still don't have enough capital, but it's not a complete meltdown in the system anymore.

ZARROLI: But investors also noted that Citigroup's numbers would not have been so high if not for some one time only factors: a big accounting rule change made the company's gains look larger, much of the overall revenue gain appeared to be tied to a big increase in bond trading that may not be sustainable. And some analysts say some of the big banks also received money from insurance giant AIG, which used much of its government bailout funds to pay off contracts it had signed with large financial firms. Bart Narter is a banking analyst at the research firm Celent. He says if it weren't for factors like these, Citigroup's numbers would've looked worse.

Mr. BART NARTER (Banking Analyst, Celent): This is something all corporations do, and I always find it annoying. And some activities they call exceptional, so they kind of separate them out and say, except for this really exceptional thing, we made money.

ZARROLI: Narter noted that company's credit card revenues have been down, but the decline was offset last quarter by the sale of an overseas card subsidiary. And he says that raise questions about how sustainable the bank's profits are.

Mr. NARTER: The fact that they're able to sell off chunks of it to show a profit doesn't, you know, what are they going to do next quarter in Latin America?

ZARROLI: Citigroup has also saved money by laying off another 13,000 employees. In a larger sense, the troubles at Citigroup underscore how perilous the times remain for some big banks. With the recession continuing, they're facing big write-downs in mortgages, credit cards and consumer loans. This week's earnings from other banks like JP Morgan Chase and Goldman Sachs suggest that many banks have turned a corner. But there are exceptions and Citigroup appears to be one of them.

Jim Zarroli, NPR News.

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