http://www.portfolio.com/news-markets/top-5/2008/07/18/Citigroup-Narrows-Loss?TID=email/news/top5
Been Down So Long It Looks Like Up to Me, is the title of the novel by Richard Fariña. It could also describe how investors are looking at America’s biggest bank.
The bank had its third consecutive quarter in 
the red, reporting a $2.5 billion loss. It took another $7 billion of write-downs on top of more than $40 billion since last fall.
The good news? The loss was much narrower than forecasts and the write-down was not as huge as feared.
Vikram Pandit, the chief executive of Citigroup, described this as progress.
“We cut our second-quarter losses in half compared to the first quarter,” he said. “The cost of credit increased by 20 percent from the first quarter, but write-downs in our securities and banking business dropped by 42 percent. Additionally, head count and expenses declined sequentially. While there is still much to do, we are encouraged by our progress in delivering on our commitment to the reengineering efforts,”
Stock futures rallied after the results were released. The been-down-so-long-it-looks-like-up-to-me report is apparently leading many investors to think that the worst of the credit crunch is over. The results on Thursday night from Merrill Lynch suggested otherwise, after the investment firm recorded a loss of $4.6 billion, even wider than the biggest Merrill bear on Wall Street had forecast
“In an environment where sentiment is against these stocks, we’re going to see a relief rally,” Jonathan Monk, a senior portfolio manager at Aerion Fund Management, told Reuters. “Despite Merrill, the sector as a whole has done better than people’s worst fears.”
And indeed investors have been encouraged by better-than-expected results from J.P. Morgan Chase and Wells Fargo. But the big commercial banks are a different species than the Wall Street banks.
In one respect, the giant banks will benefit from the credit crisis, as smaller competitors retrench, withdraw from some businesses, are sold, or collapse, like IndyMac. Yet at the same time, the credit crunch is just beginning to squeeze consumers—customers of banks both big and small.
With prices of food and fuel rising, Americans are increasingly falling behind or defaulting on their payments on credit cards, home equity, and other loans. The costs for banks are rising.
J.P. Morgan showed weakness in its card business, and so did Citi, reporting a 56 percent decline in earnings in its global cards business. Revenue at Citi’s consumer banking unit was essentially flat from a year ago.
For the quarter overall, Citi lost $2.5 billion, or 54 cents per share, compared with a profit of $6.23 billion, or $1.24 per share, in the quarter a year earlier. Its loss from continuing operations was $2.22 billion, or 49 cents per share.
Under Pandit, Citi has been trying to shrink, selling nonessential businesses, like its German banking unit, and cutting jobs. The bank said that it reduced its workforce by 6,000 in the second quarter, or by 11,000 in the first half of the year.
The process of trying to make Citi a leaner, more nimble global behemoth, while working through a deep economic quagmire, means that investors should not get their hopes up too soon. Citi’s stock price is still near where it was in 1998, when it was born out of the barrier-breaking merger of Citicorp and Travelers. Pandit is back at the starting line.
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