The stock market rallies today, everything is fine again now:
NEW YORK (Reuters) – U.S. stocks rose about 5 percent on Tuesday after Citigroup said it was profitable in the first two months of 2009 …
So it seems that Citibank's Pandit is the hero who brought this about:
March 10 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.
Ok – the best quarter since the last one that was profitable. But does that mean that this quarter will turn profitable? Or does that only mean that the loss this quarter will be smaller than the double digit billion losses in each of the five quarters before? Pundit does not tell us:
“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg.
"Obtained" by Bloomberg? Seems to me it was given to Bloomberg by Pandit's public relation agency.
“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said.
Now wait a second – writedowns that have already been disclosed do not count? In reality there were probably $19 billion of revenue but the writedowns, disclosed or not, are bigger and I bet the quarter will thereby end with another loss.
The Bloomberg piece created a sucker rally. I believe it is a lot of hot air. A last minute pump and dump scheme.
As the Wall Street Journal reports:
Barely a week after the third rescue of Citigroup Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount, according to people familiar with the matter.
Federal officials describe the discussions, which are wide-ranging and preliminary, as "contingency planning." Regulators are trying to ensure that they are prepared if Citigroup takes a sudden turn for the worse, which they aren't expecting, these people say.
"Contingency planing" when you do not expect trouble?
Banking regulators and Treasury officials called Citigroup executives over the weekend amid rumors about the discussions, according to people familiar with the matter. They said the talks were geared toward future planning and that no new rescue was imminent.
The discussions include the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. The FDIC backs many of Citigroup's deposits in the U.S., as well as a large amount of new debt issued by the firm.
Regulators say the planning should be seen as a normal function of government during a financial crisis.
Four important agencies work with Citigroup over the weekend because they do not expect any problem. Is that a normal functioning of government? No, I will not buy that bridge.
Citi is bankrupt. There is no way to rescue it except the taxpayer steps in to cover the $140 billion or likely more of Citi's derivative losses.
Is there the political will to that? Not really, but neither is there political will to let it fail. The powers that be will try to prop Citi up from quarter to quarter and will thereby let the cancer grow that eats at the health of the real economy.
It would be very messy to let Citi aand other big banks go down and woud have a lot of serious international and national political consequences. Still – unless the U.S. wants to go down itself, it might be the only right thing to do.