Too-big-to-fail datapoint of the day

By Felix Salmon
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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There is no such thing as cheap retail funding anymore. With rates so low, in order to still attract savers, you need to pay up. Good chance Citi is losing money on most of their retail deposits compared to where they can borrow for instance at the fed. However, it looks better to have that retail funding and also it cross sells better.

Posted by M | Report as abusive


Not quite sure where you’re getting your info at. Short term checking rates are ridiculously low as are FDIC insured CD rates. The rate on FDIC insured CD’s is pretty closely tied to the Fed funds rate and the discount rate set by the Fed. Savers are currently NOT getting much of anything for FDIC insured CDs, or SIPC protected money market funds are. Anything guaranteed by the government is not costing Citi diddly squat, and most deposits are in vehicles that are government guaranteed, as they have always been.

Posted by Structured Products Guy | Report as abusive

With the way banks cheat the public these days, it’s surprising any of them cannot have earnings per share in the stratosphere. If anyone in government had any decency, they would return to the boring, safe form of banking and regulation of days gone by. Alas, with globalization comes an army of international thieves and money used to control our country and it’s people. Since I’m too stupid to know what’s good for me, I’ll have to reflect on those days of the 70′s when I and my peers foretold this situation only to be reminded of our ignorance. Being right is little consolation when the ruling class maintains it’s refusal to recognize the obvious.

Posted by Not Unemployed anymore | Report as abusive

As of now, the NYT and the FT are financially literate enough to report Citi’s results as a loss. But both the WSJ and WaPo are repeating Citi’s press release spin about how a loss of 27 cents per share is a “profit.” And it’s not just their headline writers who are incapable of analyzing a press release – the articles themselves refer to earnings and profits.

Posted by FE | Report as abusive

Sounds to me like too much data and no clear numbers from the bean counters. Too soon to tell, as I see it.
I think CITI still has a ways to go in order to get their house in order. Look at how much competition got knocked out. If they can’t make it in this market they are probably done for when some stronger banks get organized. I think they were spread too thin and too many of their divisions were missmanaged.

Posted by f belz | Report as abusive

“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.”

Part of it is because Citi’s own credit improved during the quarter. CVA (the 1.7B number) is a valuation adjustment to the company’s derivatives book and to any liabilities they have elected to carry at fair value that reflects bilateral credit risk. By “bilateral” I mean that it reflects both the risk to Citi that their counterparties will default, as well as the risk to Citi’s counterparties that Citi itself will default. Because of the latter, when Citi’s credit spreads tighten (as they did in Q3 from 420bps to 200bps), they book CVA losses. Conversely (not to mention perversely), they book CVA gains when their spreads widen.

So, if I’m reading Sandrew’s comment correctly, the answer is that we are now past bookkeeping and into accounting, per the old joke. (In bookkeeping, the question is “What is the total?” In accounting, the question is “What do you want the total to be?”)

Posted by Ken | Report as abusive