Profitable Citi

Wonder of wonders, Citigroup managed to report a profit for the first quarter of 2009. To a certain extent, the bank's results resembled those elsewhere -- trading gains and continued credit losses, adding up to a profit. But Citi's case was somewhat unique. The bank actually posted a negative EPS, which is a funny way to rack up a quarterly profit. And everyone's having a good chuckle at this:

Citigroup posted a $2.5 billion gain from accounting rules that allow companies to profit when their own creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit.

Just think, if Citi had done still worse it could have reported an even better quarter.

The bottom line is this, credit losses continue to grow, and so long as unemployment remains a problem (which it will, for at least another year), those losses will remain elevated. And while it's great that the banks are booking big trading gains, they likely won't be able to sustain the good times they had over the past three months. The pressure on these firms will not subside any time soon, and it will quickly become clear, probably within the next quarter, which banks will be able to earn their way out of trouble and which ones won't. Add to this the likely impact of the stress test results, due out May 4th, and it seems that things may be coming to a head for Citigroup. The question is -- is the government prepared?