A Bit of Cold Water on the Citi Memo

Vikram Pandit's plan worked. Send out a companywide memo in early March, explaining that the business is growing like gangbusters and that the stock price isn't reflecting reality.

Pandit writes:

In addition to our strong capital position, I am most encouraged with the strength of our business so far in 2009. In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.

Citi shares are up 29 percent (to $1.36!!) and the news helped fuel an overall market rally as investors were pining for just a nibble of optimism.

While this is certainly good news for Citi, however, there should have been a giant P.S. at the end of the note. It's not that hard to show good results in January and February. After all, the quarter ends in March and that's when Citigroup will have to mark down all of its cruddy assets.

If only Citigroup could exclude March, June, September, and December from its results! The stock would be at least $2 a share.

Last year, Citi recorded a net loss of $32.1 billion. During its quarterly conference call discussing the results, Pandit said it would have earned $10 billion if it could exclude markdowns.

To be fair, the $19 billion in revenues (excluding markdowns) that Pandit disclosed for January and February does represent a solid improvement over the fourth quarter, when it said it would have recorded $21 billion revenues before markdowns. So that's a pleasant comparable.

Any chance that the mark to market rules would be suspended were dashed this morning, when Fed Chairman Ben Bernanke said he opposed its suspension.

So enjoy this relief while it lasts, Citi. The real pain kicks in on March 31.

by Megan Barnett