Citigroup's Pandit Upbeat on Results; Investors' Response Muted

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Citigroup (C) CEO Vikram Pandit struck an upbeat chord as he reported fourth quarter and full year earnings for his global bank. "As we enter 2010, we are strongly capitalized, significantly more efficient, and are executing on a clear strategy ...we have created a strong foundation for the future."However, not all investors were impressed or agreed with his vision. Cassandra Toroian, chief investment officer at investment advisory firm Bell Rock Capital, says that she didn't hear anything that amounts to a business strategy for the long term, rather strategies on how to make improvements on existing problems.

"At this point it's inexcusable for Citi not to be articulating a strategy," says Toroian. "They need someone with a lot of banking experience to run the bank, and I don't see that."

Citi's Downbeat Earnings

Citi's fourth quarter earnings matched Toroian's downbeat assessment. As expected, Citi reported a fourth-quarter loss of $7.6 billion, or 33 cents a share, compared with a loss of $17.3 billion, or $3.40 a share, in the same quarter in the previous year. A large portion of the loss came from the $6.2 billion charge that the bank took for repaying he government for its bailout money in December.

The beleaguered bank expects losses to continue for some time and set aside $8.2 billion in the quarter to cover for future losses. For the full year 2009, its net loss was $1.6 billion, on revenues of $91.1 billion. Citi's stock was up 10 cents --or about 2.9% -- to $3.52 in early afternoon.

Drilling into the earnings report, there wasn't much to cheer about. The number of U.S. residential real estate loans in Citi's book that were unpaid by 90 days or more increased to $13.5 billion in the quarter from $12.28 billion in the third quarter, reflecting the increased stress that consumers are under from the country's unemployment rate of over 10%. This is a key gauge, because after a loan has defaulted for over 90 days, banks usually suspend the accounts and if consumers don't pay for 120 days, banks will write off those loans.

Similarly, its 90-day delinquencies in North America for Citi-branded credit cards were up to 2.14% of total loans in the fourth quarter, up from 1.94% in the previous quarter. As the Credit Card Act takes effect in February, profitability in Citi's card business will likely erode further, executives said in a conference call.

Growth Expected From Asia and Europe

The one positive for the future was that Citi was seeing some benefits from its large international footprint, especially since consumers in Asia and Latin America seem to be faring better than those in the U.S. For instance, Citi-branded credit cards in Asia saw 90-day delinquencies drop to 1.54% in the quarter from 1.85% in the previous quarter. Chief Financial Officer John Gerspach said that the company was seeing a "steady improvement in consumer credit trends" in both Asia and Latin America and expects positive growth there.

Pandit too harped on the prospects that are inherent in Citi's large network of global branches. It is the only U.S. based bank with branches in over 100 countries, more than any of the other large American banks. Over 68% of the company's revenues come from operations outside of the U.S.

"We have not tapped as aggressively in the opportunities of our global reach," said Pandit, who plans to aggressively start expanding the suite of offering of international products for clients, both corporate and consumers.
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