Pandit snatches some of Dimon’s market mojo

October 18, 2010

Vikram Pandit has snatched some of Jamie Dimon’s market mojo. The JPMorgan boss has been setting a smooth tone for earnings season of late. But growing foreclosure fears overshadowed the bank’s latest set of decent results. Now Pandit, his counterpart at Citigroup, seems to be the one reassuring investors.

That might not make immediate sense. After all, it’s not as if Citi’s third quarter was a blow-out performance. Its $2.2 billion of earnings equates to an annualized return on equity of just 5.4 percent, below what the bank reported in the previous two quarters and virtually half what JPMorgan managed in the three months to September. And Citi had to rely on its lower tax rate of just 21 percent to eke out even that paltry return.

So what accounts for Pandit’s newfound power to lift bank stocks? First, although it’s hard not to remain at least a little bit skeptical, Citi sounded pretty confident it has few if any of the mortgage foreclosure snafus that have bedeviled JPMorgan, Bank of America and the lender formerly known as GMAC. From management that has made an art form of owning up to mistakes made under the previous executive team, that actually counts for something. It’s also likely that investors are starting to get a better sense of how to gauge other mortgage issues that flared up recently like the scale of enforced buybacks of dodgy loans.

Second, Citi’s results, though mediocre, still managed to beat expectations, shrugging off the nagging view that a summer slowdown had hit Wall Street in particular. Yet the top line at Citi’s fixed income trading unit was virtually flat, while equities recovered from a weak second quarter. Beyond that, the bank also released $2 billion from loan loss reserves as credit continued to improve.

JPMorgan highlighted similar trends, of course. Citi’s results confirm its rival’s performance wasn’t just a fluky one-off. Of course, bad news from one or more of the other banks due to report third-quarter earnings this week could hit this new-found confidence among investors. And the mortgage mess remains a wild card. But for now at least, Pandit has the tonic for what ails bank shareholders.

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