Pandit praises Citi's performance as feds prepare for additonal help

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Different reports this morning paint different pictures regarding the health of Citigroup (C):

The FT is reporting -- based on a memo by CEO Vikram Pandit -- that Citi made money in the first two months of the year and that it appears the situation at the big bank is getting better. "Citigroup has had its best profit performance in over a year in the first two months of 2009 and has generated revenue of more than $19bn despite growing uncertainties over its future, chief executive Vikram Pandit told employees."

However, The Wall Street Journal paints a different picture where the government is looking at additional ways it can help the bank if it gets into more trouble. According to the paper, "Federal officials describe the discussions, which are wide-ranging and preliminary, as 'contingency planning.'"

Which account is true? Maybe both.

Some of Citi's divisions, including investment banking, did well in the first two months. That does not mean that as the bank's CFO and auditors begin to look at the balance sheet for the first quarter, they will not find assets that have lost a great deal of their value and have to be written down.

The problem is, in some ways, at the heart of bank troubles. Under mark-to-market accounting rules, while a big financial firm can have good performance at some of its operations, these may be swamped by writedowns of its deteriorating holdings of different financial instruments and debt.

It may be nice for employees to read Pandit's memo, but the bank is not out of the woods. Not even close.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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