Citigroup Inc was profitable in the first two months of 2009 and is confident about its capital strength after tough internal stress tests, Chief Executive Vikram Pandit said.
Pandit’s assessment sparked a rally in Citigroup shares, which fell below $1 for the first time last week. Citigroup nevertheless remains burdened with a large book of troubled assets, as well as waning patience in Washington for expanded taxpayer support of the banking system.
Citigroup shares rose 15 cents, or 14.3 percent, to $1.20 in premarket trading. Other bank stocks also rose, including a gain of 12 percent for Bank of America Corp, the largest U.S. bank by assets.
In a memo to staff on Monday, Pandit said he was disappointed with Citigroup’s stock price and "broad-based misperceptions" about the New York-based bank and its finances.
"I am most encouraged with the strength of our business so far in 2009," Pandit wrote. "In fact, 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."
Citigroup earned $2.2 billion in the July-September 2007 period. It has since lost $37.5 billion.
Pandit said revenue in January and February was $19 billion, excluding various writedowns, versus a quarterly average of $21 billion as adjusted in 2008. Expenses of $8.1 billion over the two months were below the bank’s target.
The cost of insuring Citigroup debt against default hit a record Monday. Pandit said, "Our credit spreads are disconnected from our condition and are inconsistent with the government’s announcements regarding support for the financial system."
Since October, the bank has received two government bailouts, $45 billion of capital from the Troubled Asset Relief Program, and an agreement to cap losses on $300.8 billion of troubled assets.
Last month’s bailout would make the government Citigroup’s largest shareholder, with a potential 36 percent stake.
The Wall Street Journal, citing people familiar with the matter, on Tuesday said U.S. officials are examining fresh steps that could be needed if Citigroup’s problems mount. It said talks were preliminary and no imminent rescue was planned.
Some key Republicans in Congress have said the United States should consider letting some large troubled banks fail rather that commit more money to prop them up. Among these are Richard Shelby, the top Republican on the Senate banking committee, who Sunday called Citigroup a "problem child."
Pandit said the bank was confident about its capital strength after undertaking stress tests, using assumptions that were more pessimistic than those of the Federal Reserve.
David Williams, head of European bank research at Fox-Pitt Kelton, said Citigroup needed to disclose more about its tests.
"Had you invested on the back of anything said by these management teams over the last 12 months you would have lost pretty much all of your money," he said. "So there is a credibility issue. A one-dollar stock price tells you the market has stopped listening."
Williams said investors would "significantly reward" Citigroup if first-quarter results, expected in mid-April, reflected Pandit’s upbeat tone.
Pandit said the government assistance would leave Citigroup "the strongest capitalized large U.S. bank as measured by tangible common equity and Tier-1 ratios." (Reuters)
