Citi's $1.6 billion profit based on $2.5 billion accounting trick

Today we have another example of why it is such a huge mistake to let companies write their own report cards. That's right folks, Citigroup, Inc. (C) reported a $1.6 billion profit for the first quarter of 2009. Doesn't this sound great? It sure does until you take two seconds to realize that the profit would have been a $900 million loss were it not for a $2.5 billion accounting trick.

What accounting trick? I could not believe my eyes when I read it but it turns out that Citi was able to take to a $2.5 billion gain on a rule that lets it record any declines in the market value of its debt as an unrealized gain. The rule, which Citi adopted in 2007, reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit. But Citi didn't do that -- this has to be some kind of an error.