Accounting fraud allows Citigroup to post phantom profit for Q1 2011

After JPMorgan and Bank of America, yesterday was Citigroup's turn to use accounting fraud to post phantom profits.

Basically, the company is reporting a profit of $3 billion in profits when at the same time, reducing the loan loss reserves by $3.3 billion... Nothing new under the sun, that has been going on for all the banks for the past 3 years, and analysts cheer on the news, accounting firms approve the numbers, scandals are left for the next year or two.

April 18 (Bloomberg) -- Citigroup Inc. rose in New York trading, the only U.S. lender among the top 10 by assets to advance, after reporting profit that beat analysts’ estimates and cutting provisions for future loan losses by $3.3 billion.

[...] First-quarter net income fell 32 percent to $3 billion, or 10 cents a share, exceeding by a penny the average per-share estimate of 21 analysts surveyed by Bloomberg.

Chief Executive Officer Vikram Pandit, 54, relied on the reduction in reserves to report the New York-based bank’s fifth profitable quarter in a row. Losses on troubled loans declined 25 percent as fewer customers missed payments compared with the same period last year. Profit at Citigroup’s trading and investment-banking businesses fell by almost half. Revenue declined in five of the six business units.

“The company is showing just an incredible turn in the quality of its loan portfolio, which I don’t think was expected,” said Lutz, Florida-based Richard Bove, an analyst with Rochdale Securities LLC. “I don’t see any bank having that type of rapid improvement.”

[...] Citigroup’s revenue declined 22 percent to $19.7 billion. Revenue for the Citicorp division, which contains the bank’s trading, consumer and investment-banking units, fell to $16.5 billion from $18.5 billion in last year’s first quarter. The Citi Holdings division, which contains unwanted businesses and assets, had revenue of $3.28 billion, down from $6.55 billion.

Losses from bad loans declined to $6.27 billion from $8.38 billion. The $3.3 billion reduction in the provision for losses on future soured loans amounted to about 80 percent of the bank’s pretax profit.

“These guys have put up a fairly respectable record of turning this institution around,” said David Knutson, a credit analyst with Legal & General Investment Management, which manages Citigroup bonds worth about $85 million. “It’s another question whether they should be releasing reserves as aggressively as they are.”

Total trading revenue declined to $4.87 billion from $6.59 billion in the same period last year, a period that Oppenheimer & Co. analyst Chris Kotowski called “the best quarter in history” in a note last month. New York-based Kotowski had predicted a drop to $5.01 billion.

Trading and investment banking are run from Citigroup’s institutional-clients group, which Pandit overhauled in January when he appointed ICG head John Havens to chief operating officer. James Forese now runs securities and banking, reporting to Havens.

Stock-trading revenue fell to $1.07 billion from $1.21 billion a year earlier, and compared with $596 million in the fourth quarter. Fixed-income trading revenue declined to $3.8 billion from $5.38 billion in the same period last year.

“This was a very solid quarter outside of trading and a strong quarter inside trading,” said Moshe Orenbuch, an analyst with Credit Suisse Group AG who had predicted that fixed-income trading revenue would fall to $2.73 billion.

The earthquake in Japan forced the bank to set aside about $100 million for possible losses on mortgages and private-equity investments, Chief Financial Officer John Gerspach told analysts on a conference call. The bank recovered initial trading losses “within a week or so” after the quake, Gerspach said.

Citigroup’s regional consumer-banking business reported earnings rose 58 percent to $1.55 billion. Profit at the U.S. bank increased to $551 million from $15 million. Latin American earnings rose to $486 million from $372 million last year. In Asia, the consumer bank’s profit fell to $461 million from $567 million.

Citigroup may invest as much as $4 billion in consumer banking in the next three years, mainly in emerging markets, Manuel Medina-Mora, head of consumer banking for the Americas, told reporters in Santiago in March.

Citigroup’s investment-banking business, which includes advising on mergers and acquisitions as well as managing sales of equities and bonds, reported revenue slid to $851 million from $1.06 billion in the same quarter last year. The bank dropped to seventh from third among advisers on completed global mergers and acquisitions during the quarter.

Transaction Services

Profit at the transaction-services business fell to $841 million from $930 million last year in the first quarter. The unit, which made about one-third of Citigroup’s $10.6 billion profit in 2010, lost top executive Paul Simpson to Bank of America during the quarter. Pandit has yet to appoint a permanent replacement.

In Citi Holdings, the local consumer-lending division reported a $599 million loss, compared with $1.83 billion in the first quarter of last year. This unit, which contains the CitiFinancial business, also reduced its provision for future loan losses by $1.11 billion.

“Citi Holdings losses continued to decrease,” Pandit said in the statement. “We are investing in our core businesses in Citicorp, our capital strength improved and the mix of revenues reflects the diversity of our businesses and our depth in both the emerging and developed markets.”

Citigroup reclassified $12.7 billion of assets in its “special asset pool” business to trading from held-to- maturity, a move that paves the way for the sale of those assets, the bank said. The move reduced revenue by $709 million.

“Securities-related revenue was a positive surprise and the reserve release was better than expected,” David Trone, an analyst with JMP Securities LLC, said in a note. “On the negative side, like peers, there is no material momentum on the traditional banking side, which we view as key to getting the stock out of its range.”

Bloomberg exposes Geithner yet again (and hence Obama)

It's been about 18 months since I wrote this post: Bloomberg exposes Geithner (and hence Obama). Here we are again, with corruption blocked at peak levels in the US.

Mark Pittman was a real patriot.

RIP Mark Pittman.

Oct. 25 (Bloomberg) -- The late Bloomberg News reporter Mark Pittman asked the U.S. Treasury in January 2009 to identify $301 billion of securities owned by Citigroup Inc. that the government had agreed to guarantee. He made the request on the grounds that taxpayers ought to know how their money was being used.

More than 20 months later, after saying at least five times that a response was imminent, Treasury officials responded with 560 pages of printed-out e-mails -- none of which Pittman requested. They were so heavily redacted that most of what’s left are everyday messages such as “Did you just try to call me?” and “Monday will be a busy day!”

None of the documents answers Pittman’s request for “records sufficient to show the names of the relevant securities” or the dates and terms of the guarantees. Even so, the U.S. government considers the collection of e-mails a partial response to an official request under the federal Freedom of Information Act, or FOIA. The Justice Department in July cited an increase in such responses as evidence that “more information is being released” under the law.

President Barack Obama vowed to usher in a new era of open government. On Jan. 21, 2009, the day after his inauguration and a week before Pittman submitted his FOIA request, Obama directed agencies to “adopt a presumption in favor of disclosure, in order to renew their commitment to the principles embodied in FOIA.”

The saga of Pittman’s request shows that the promise of transparency has its limits when it comes to the government’s intervention in the financial industry, which at its peak reached $12.8 trillion in commitments. From the 2008 Bear Stearns Cos. rescue to the Federal Reserve’s policy of quantitative easing in 2010, the Obama administration has delayed disclosures and defended its right to secrecy in court, said Tom Fitton, president of Judicial Watch Inc., which describes itself as a conservative foundation.
[...]
The department held back 866 more pages, saying each was exempt from disclosure on one of four grounds: trade secrets, personnel rules and practices, memos subject to attorney-client privilege and violations of personal privacy.

Treasury also cited the trade-secrets exemption in responding to a separate, similar FOIA request by Bloomberg News for details about Citigroup’s segregated bad assets. In that response, 73 of 104 pages were completely blacked out except for headings. Only six pages -- the cover, contents, a boilerplate list of legal disclosures and a paragraph titled “FOIA Request for Confidential Treatment” -- were free of redactions.
[...]
Bloomberg LP, the parent company of Bloomberg News, sued the Fed over another Pittman FOIA request that sought the names of banks that took emergency loans from the central bank. The company has prevailed in U.S. District Court and on appeal. The Fed, which has not released the information, has until tomorrow to decide whether to ask the U.S. Supreme Court to consider the case.

Like the Treasury Department, the central bank cited the exemption for trade secrets, known as exemption 4, in withholding details about borrowers.
[...]
Pittman’s request for the Treasury Department records spent months in limbo, according to discussions with the agency’s employees. He had waited about 10 months for a response when he died on Nov. 25, 2009. Shortly afterward, Michael Galleher, an attorney working on contract for the Treasury Department, called Bloomberg News, asking where he could send the responsive documents. Attempts to return Galleher’s call failed; he couldn’t be found at the agency.

Citi Pandit told Congress compensation was $1 Million but bank filing shows $10.8 Million

Mish, via Huffington Post, via Reuters shows:

Citigroup Chief Executive Vikram Pandit received nearly $11 million of compensation in 2008.

A month earlier, he testified to Congress that his compensation for 2008 was just $1 million.

"My compensation for the year 2008 was my salary, which was $1 million," he told the House Committee on Financial Services on February 11, failing to mention his sign-on and retention awards, as well as stock and option awards.

At the same hearing, Pandit pledged to accept a salary of just $1 a year and no bonus until Citibank once again posted a profit.

The $10.82 million in total compensation for 2008 consisted of $7.73 million in sign-on and retention awards, a $958,333 salary, $9.84 million of stock and option awards and $16,193 of other compensation.

According to Crain's New York Business, Pandit originally was paid $40 million, not $11 million, but lost a significant bulk of the money when the stock tumbled, recently dipping to below $1 a share.

Please also have a read at this previous post: Citi CEO Vikram Pandit Says "Pigs Can Fly"

Citigroup dismantled

The news is now official, Citigroup in its configuration is going to disappear. Next step is complete dismantlement and selling itself in pieces?

Jan. 16 (Bloomberg) -- Citigroup Inc. posted an $8.29 billion loss, twice as much as analysts estimated, and said it will split in two under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base decimated by the credit crisis.
[...]
A dwindling capital cushion and sinking stock price forced the 52-year-old Pandit to abandon Citigroup’s decade-old strategy of providing investment advice and insurance alongside branch banking, stock underwriting and corporate lending. He’s shedding units to free up capital and save the bank from insolvency.

“They are going to try to home in on what’s worth something, and try and sell the pieces that they really can’t value,” Todd Colvin, vice president of MF Global Inc., said in a Bloomberg TV interview.
[...]
The plan to cut off “non-core” businesses in a deteriorating economy may put the bank into a deeper hole, Sanford C. Bernstein & Co. analyst John McDonald wrote in a Jan. 14 report.

“It will likely be difficult for Citi to effectively dispose of assets and businesses in the current environment,” McDonald wrote. “Any new solution is likely to need an incremental infusion of common equity, either from the government, private investors or the public markets, any of which is likely to be dilutive to existing Citi shareholders.”