Citigroup Earnings Preview: Experts Expect Bank to Break Even

Citigroup's (C) stock is up 40% from the beginning of the year, and up several-fold from its lows of early last year. So is the bank doing that much better? The world will get some answers about that on Monday, when the global bank reports its first-quarter earnings. Analysts polled by Thomson Reuters expect Citi to break even.

Breaking even could be a first step toward Citi's return to profitability, a goal that CEO Vikram Pandit certainly has his eyes on, both for the good of the company and for his personal bottom line: Pandit has publicly pledged to take only $1 as salary until the company is making money again.

To be sure, the last few months have been momentous for the storied bank, which reached the brink of failure during the financial crisis. A year and a half ago, the government had to bail out the bank -- twice -- with $45 billion of taxpayer money, and at one point even took a 36% stake in the company.

But in March, the Treasury Department announced that it would start selling its already pared-down 27% equity stake in Citi. Investors saw that as a positive sign: After all, if the Treasury believes Citi is in a strong enough position that it doesn't need government support, then it must be on firmer financial ground.

Whittling Down the Toxic Asset Portfolio

Pandit has been emphatic in saying that Citi is a different bank today than it was a year ago.

"We have taken responsibility for putting our own house in order," Pandit said in recent testimony in Washington. "As a result, Citi is now a smaller institution that is focused on being a bank -- not a financial supermarket."

If indeed, the bank is in sounder footing, it would be a sign that the government's bailout wasn't in vain.

There also seems to be a sense of expectation building up to Citi's results on Monday, especially after two of its rivals JPMorgan Chase (JPM) and Bank of America (BAC) reported better than expected quarterly earnings this week. JPMorgan's fixed income trading desks performed well, and Citi's fixed income desks have in the past been known to be relatively strong.

Of course, Citi still has to wade through billions of dollars of bad assets, which it has placed in a division called Citi Holdings, where it is slowly whittling them down. Pandit says that today, Citi Holdings represents 29% of Citi's total assets, compared to 41% at the beginning of 2008.

And while the damaged fraction of Citi is shrinking, the healthier part is growing: Citicorp, which is now its core banking division, accounts for 76% of revenues, compared to 61% in 2007.

Investors are hopeful. Citi, one of the only U.S. banks to have a large global presence, should also benefit from faster economic recovery in several of the foreign countries in which it operates. "Performance should improve gradually, led by continued expansion of revenues overseas especially emerging markets," said JP Morgan banking analyst Vivek Juneja, who has a $5.50 price target for Citi's stock by December 2010. Late Friday morning, the stock was trading around $4.60.