Citigroup CEO Vikram Pandit might have eked out a billion-dollar profit yesterday, ending five consecutive quarters of red ink, but he isn’t out of the woods quite yet.
Even after the hobbled bank reported a $1.6 billion profit on the back of trading gains and new accounting rules that allowed it to assign more favorable prices to some of its dicier assets, Wall Street remains worried about the bank’s future and the upcoming results of the government’s stress test.
That was reflected in Citi’s stock price, which sank 10 percent yesterday to close at $3.68.
Pandit will face another test Tuesday, during what is expected to be a tumultuous annual shareholders’ meeting.
To be sure, Citi’s profit stood in stark contrast to the bruising $5.1 billion loss it suffered a year earlier. And Citi CFO Ned Kelly told The Post that bank officials feel as if they’ve taken all the right steps to shed risky assets while at the same time navigating through the economic downturn.
“Given the general market conditions, clearly there’s a dramatic change this quarter,” he said.
Helping to prop up the bank’s first-quarter earnings was a $2.5 billion gain from Financial Accounting Standards Board rules that were amended earlier this month, enabling banks to use “fair judgment” in assigning values to illiquid securities. Before the change, the securities had to be marked to market, which for securities that don’t trade means sharp writedowns even when there is some value there.
Meanwhile, the bank also posted about $9.5 billion in revenue from trading activity and investment banking.
Citi also showed a gain of more than $1 billion from a decrease in value of its own credit-default swaps.
While some analysts dismissed the gains as a product of accounting shenanigans, Kelly defended the quality of the earnings, saying that its gains on CDS are a double-edged sword given that in the fourth quarter of 2008 CDS caused a $5.2 billion writedown.
Citigroup results come at a time when rivals JPMorgan Chase, Wells Fargo and others are showing signs of coming back after their own difficult quarters. mark.decambre@nypost.com