Just shows you should never believe the headlines when it comes to quarterly earnings—especially for banks right now.

According to the headline numbers, third quarter earnings at Citigroup (C) climbed by 74% to $3.8 billion. The headline number put Citigroup’s earnings per share at a huge $1.23. So according to the headlines, Citigroup killed this quarter since Wall Street had been projecting that the bank would earn just 82 cents a share for the period.

Just one tiny problem—the headlines are misleading big time. $1.9 billion of the bank’s $3.8 billion in earnings this quarter are due to a very quirky accounting gain. I say quirky because the $1.9 billion is the result of a decline in the bank’s credit quality. When a bank’s credit quality declines, accounting rules say the bank should revalue the debt that it owes its creditors. The theory is that debt is now worth less because the bank’s creditors think there’s a greater chance that the bank will default. The effect is that as a bank’s credit rating–as expressed in the market for credit default swaps—drops, the bank gets to record a big accounting gain on its debt. That’s where $1.9 billion in Citigroup’s earnings came from this quarter.

Of course that $1.9 billion gain is all on paper. Read more

Like other U.S. banks Citigroup is having trouble generating revenue growth from banking

“Citi achieved another solid quarter of operating performance as we continue to execute our strategy,” Citigroup (C) CEO Vikram Pandit said on Friday, July 15, as the bank released its second quarter earnings report.

Huh? Vikram and I must have read different quarterly reports. The one I saw showed a bank that still hasn’t been able to generate any significant revenue growth in its home market and that is seeing earnings grow only because its reserves for bad debt are falling.

I do see one bright spot in Citigroup’s international business, but I sure don’t see a “solid quarter of operating performance.” But rather than engaging in a battle of the spin, let’s look at the numbers that the bank reported. Read more

I’m suggesting that you think about lightening up on your exposure to financials. I don’t think you need to sell all your bank stocks, but the sector is showing signs of breaking down with another 10% drop in the cards. The sector showed a decent little bounce yesterday on JPMorgan Chase (JPM) CEO Jamie Dimon’s presentation at the company’s shareholder meeting, but it’s back on the downside again today.

The question is not just whether to sell, but also what to sell. Today I’m selling Citigroup (C) out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/

Another 10% correction in this sector isn’t so big a correction that investors can’t sit still through it. But what troubles me is the good possibility that some of the biggest names in this sector aren’t going much of anywhere very quickly when the correction is over. Read more

Update Citigroup (C)

It’s a cynical, totally transparent ploy—but it’s our ploy. If you own the shares as I do, I’m sure you hope it works.

Citigroup (C) has announced that it will engineer a reverse 1 for 10 stock split and then resume payment dividends at a rate of a penny a share.

The two moves will finally get the shares above $10, the cut off level for some institutional investors. That plus the new dividend—some institutional investors can’t buy shares without dividends—will expand the stock’s potential ownership pool. Shares of Citigroup have been stuck at $5 for months.

Not that anyone is going to be fooled by these moves into thinking that shares of Citigroup are anything but the slowly recovering equity of the U.S bank that got the biggest taxpayer bailout. Read more

Buy Citigroup (C)

In the long term, I’m not especially interested in owning Citigroup (C).

I think the bank’s consumer banking business, once it’s strength, has turned into an also ran. Its capital needs forced it to put its Smith Barney brokerage business into a strange joint venture with Morgan Stanley (MS). And what was once the best global name in banking has been seriously tarnished by the financial crisis and the company’s near death experience.

Ah, but in the medium term, it’s a different story. Read more