Citi profitable in 2009? Really?

Some people may wonder if Vikram Pandit, Citigroup (C) CEO, is living in an alternative universe. But the real question is why Citi's board and the U.S. Treasury are coddling Pandit. Could it be because Pandit promises that Citi will be profitable in 2009?

I doubt it. More likely, the reason is that nobody better is willing to step into the thankless job of being CEO of Citi. Pandit has a compelling track record of being overly optimistic, according to a Reuters interview with David Williams, head of European bank research at Fox, Pitt-Kelton.

This lack of credibility throws into question a note from Pandit that somehow got out to the media. In it, Pandit claimed that Citigroup was having its best quarter-to-date performance since the third quarter of 2007, when it last made a profit. Pandit crowed that "revenues excluding externally disclosed marks were $19 billion in January and February alone, almost reaching the $21 billion of the first quarter last year." [Italics are mine.]

First of all, as far as I know, revenue excluding external marks -- which means the write-down of Citi's bad assets -- is not the same as revenue. And revenue is not profit. My hunch is that when the external marks and all the other costs and losses are included, the picture may not be as bright as cheerleader Pandit stated in his memo.

The U.S. has already poured or pledged $356 billion into Citi -- including $45 billion in TARP money and another $301 billion in guarantees on losses from bad loans. And it just spent $13 million of that as a consolation prize for canceling corporate perks and and perks. Further, the Treasury is preparing a "contingency plan" which means what it will do if Citi needs even more rescuing.

Why is Pandit still in the job? Is there really no way for the U.S. to get a capable turnaround CEO into Citi who can dispense with the bull and face the facts? With its stock price hovering at $1, I'd like to think Citi has nowhere to go but up.

Unfortunately, absent an honest and comprehensive analysis of Citi's problems and a realistic plan to fix them -- which does not seem to be coming out of Pandit -- Citi probably has further to fall.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares.

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