The most shorted stock on the NYSE, Citigroup (NYSE:C), is down ~5% following this morning’s earnings announcement. The too-big-to-fail bank reported revenues of $18.4 billion — an 11% drop in revenues from last quarter.
On a technical trading note, the key $5 a share psychological level has been broken.
What do we think?
Citigroup missed Wall Street expectations for revenues of $20.6 billion. Net income came in at $1.3 billion ($0.04 a share) versus expectations for $2.6 billion ($0.08 a share). Ouch!
However, the good news is Citi has made a huge improvement since losing $7.6 billion ($0.33 a share) in the year ago period.
Citi improved key metrics including credit loss provisions ($26.0 billion, down by $25.7 billion, or 50%, from the prior year) and financial strength (Tier 1 Common Ratio improved to 10.7% from 10.3% last quarter).
CEO Vikram Pandit noted:
“Our core businesses in Citicorp, with its deep roots in both the developed and emerging markets, performed well throughout the year while we made targeted investments in talent and technology. At the same time, we continued to wind down Citi Holdings in an economically rational manner, reducing assets by $128 billion in 2010 alone. Holdings’ total assets have declined by more than half from their peak in 2008 to $359 billion and now stand at less than 20% of our balance sheet.”
What are the risks going forward?
Citicorp generated 59% of its revenues and 76% of its net income from its international operations. Thus, Citi is very dependent on a global economic recovery.
Like JPMorgan’s (NYSE:JPM) earnings, allowance for loan losses is still high at $40.7 billion (6.31% of loans). Citi is also facing more mortgage-related matters. This could become a problem as last week he Supreme Judicial Court of Massachusetts has voided the seizure of homes because Wells Fargo (NYSE:WFC) and US Bancorp (NYSE:USB) “failed to show they held the mortgages at the time they foreclosed.” (See “Why These Bank Stocks are Getting Dropkicked Now“)
As has been the deal with banks, much more time is needed to finish healing from the economic crisis.
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