Analysts expect Citi to lose $1.4 billion, missing surge by financials
The wave of optimism that swept over the financial services sector on Monday's news of Wells Fargo's larger than anticipated profit could crash when Citigroup (C) announces its first quarter earnings on Friday. The latest consensus estimates by Thomson Reuters is forecasting that Citi will take another bath in red ink to the tune of $1.39 billion, or 34 cents a share.
What's the tip-off that Citi won't be following Wells Fargo (WFC) and Goldman Sachs (GS) with gaudy first quarter numbers? It's Citi's silence. Both Wells and Goldman leaked their good news early this month. But Citi? Not a peep.
Analysts speculate that Citi continues to struggle under the mounting weight of exposure to consumer related loan defaults that are likely to increase as the recession continues and more Americans lose their jobs. Yesterday's report on mounting consumer credit card defaults and today's Realty Trac Inc. report announcing an uptick in foreclosures due to home owners missing mortgage payments both have soured Wall Street on Citi's ability to deliver positive earnings, now or in the future.
In recent weeks investors have bid up shares of almost all the financials after many, like Citi, had fallen to penny stock valuations. As a result, shares of Citi have doubled since February 27 after it received additional bailout help when the government agreed to convert as much as $25 billion worth of preferred shares into common stock that could raise its ownership stake in the bank as high as 36 percent. With the government providing some $45 billion in bailout support for the bank and with Citigroup CEO Vikram Pandit's internal memo about the bank being profitable in the first two months of 2009 "mysteriously" leaked to the press last month, investors were encouraged that the positive news from Goldman and Wells could be the beginning of a trend.
Morningstar reported that Citi rose more than five percent in heavy trading yesterday, climbing as high as $4.48 before ending the day at $3.97. Today, Morningstar alerted investors that the stock was down more than 12 percent in morning trading, but after JPMorgan announced better than expected earnings, Citi was again lifted by the upward movement of the financial sector. Citi traded at $4.05 in mid-day trading.
Unfortunately, all stocks in the financial services group are not positioned to beat earnings, and analysts still expect the reality of Citi's ongoing challenges to sink in with its earnings report tomorrow.
"Wells' announcement may be a little unique to them," explained Peter Kolvalski, portfolio manager at Alpine Woods Capital Investors in an interview with Reuters. "The rest of the industry is going to be, in the next couple of quarters, under continued stress from asset deterioration."
And many investors may see their assets in Citigroup stock deteriorate in the short run as well.