Where does CitiGroup profit come from?

While all the bank are now marking their books to their fantasies and most of the announced profits are just going to vanish in the coming months/years (Zombie banks...), CitiGroup is taking it a step further as points out this post on ZeroHedge:
Yet what caught our attention is the FV action at the big 4 banks: Citi, BofA, Wells and JPM. What is most notable is that while the three firms ex Citi have taken a decent haircut to their Book-to-FV margin, Citi is now down to a mere 0.2% difference between loan Carrying Value at Q2 ($602.6 billion) and loan Fair Value ($601.3 billion). What is more notable is that on average the margin has increased over the past 2 quarters: while the average FV-to-Book spread was 3.2% at year end 2008 for the non-Citi banks, it grew by 1.5% to 4.7% at Q2 (non weighted). And in this environment where banks have been getting more cautious and applying an increasing discount to their loan book values, Citi has collapsed the differential from 2.8% to 0.2%!

Just what about the economic environment has given Citi auditors KPMG the flawed idea that the bank's loan can be easily offloaded with virtually no discount? And just how much managerial whispering has gone into this particular decision.

If one assumes a comparable deterioration for the Citi loan book as for the other big 4 firms, and extrapolates the 2.8% getting worse by the average 1.5% decline, one would end up with a 4.2% Book-to-FV deterioration. On $602 billion of loan at Q2, this implies a major $25 billion haircut. Yet this much more realistic number is completely ignored courtesy of some very flexible interpretation of fair value accounting rules at KPMG. Maybe Citi and its accountants should take a hint from Regions Financial CEO Dowd Ritter who carries the FV of his $90.9 billion loan book value at a 25% discount. [...]

And as usual the SEC is completely out of yet another regulatory picture. What is very frightening if Ritter is the correct one of all bank execs: if a 25% discount to the combined carrying loan value at just the Big 4 banks is truly appropriate, it would mean that the nearly $3 trillion in loans on the "asset" side of the big banks deserves a whopping $734 billion haircut!

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