We’ve seen this movie before: crippled financial services supermarket brings in surprising profits as trading gains offset loan losses. In today’s showing, Citigroup (C) announced a $4.4 billion quarterly profit — the biggest since Q2 of 2007.
Apparently, the Federal Reserve’s free money is paying off. Citigroup’s trading desks kicked ass by capturing $8 billion. Most of these gains came from the bond traders who were borrowing free money from the Fed Discount Window and parking them in higher yielding Treasuries. I refer to this as the “Bailout Carry Trade”.
On the bright side, Citi said “total reserves to cover losses from bad loans fell 22 percent, or $2.4 billion, from the fourth quarter to its lowest level in two years. The company said its credit losses fell 15 percent to $8.4 billion from almost $10 billion in the fourth quarter. Citigroup reported improvement across nearly all its loan portfolios.”
Let’s see how the SEC’s moves affect Citi trading in the near term …