Too-big-to-fail datapoint of the day

October 15, 2009
he company's own headline:

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Good luck to any mere mortal trying to make sense of Citi’s earning announcement today. Here’s the company’s own headline:

Citigroup Reports Third Quarter Net Income of $101 Million

Loss Per Share of $0.27 Included $(0.18) Impact of Exchange Offers

The headline itself, incidentally, comes with the first of four footnotes that Citi felt the need to append to the earnings release. But the main point is that none of this makes any sense. How can you have positive net income while you have negative income per share? Because of the impact of exchange offers? Well, partially — but they account for only 18 cents of the 27-cent net loss.

There’s not much more clarity in the rest of the release, although there are some big numbers: a negative $1.7 billion “credit value adjustment” to revenues at Citicorp; and a further $8 billion of credit losses, which becomes $11 billion in “managed credit losses”. (How Citi contrived to lose so much money on the credit front during one of the best quarters for credit in living memory is not explained.) And then there’s this:

Deposits were $833 billion, up $28 billion from the second quarter of 2009. Deposit growth was strong in both Transaction Services and Regional Consumer Banking.

That’s not a typo: Citigroup really does have $833 billion in deposits, and they’re growing. Most of those deposits are international, but that doesn’t mean there isn’t moral hazard there: everybody in the world knows that Citi is too big to fail, and therefore one of the safest places they can possibly deposit their millions.

A year ago, I was worried that Citi might lose its deposit base; instead, it’s grown since then, and has become one of the biggest moral-hazard plays in finance. No bank should ever have that many deposits — but you can be sure that regulators are going to do nothing about it. Citi needs that cheap retail funding.


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