Citigroup’s “Less Bad” Behavior

Citigroup Inc. (C-NYSE) is seeing shares gap up more than 1% pre-market to $52.25 as traders are hoping to get in ahead of an ongoing restructuring after the company managed to beat earnings this morning.  This was actually the largest outperformance over EPS estimates in a year, but most of the headlines wouldn’t lead you to think that.

Citigroup posted adjusted EPS of $1.18 before restructuring review charges versus $1.10 estimates, and the revenues were posted as $25.4 Billion versus the $24.2 Billion estimate.  AFTER restructuring reviews, its EPS came in at $1.01.

Its investment banking unit saw revenues climb 23%, and overall revenue growth grew 15% on a comparable basis.  Unfortunately expenses gre by about 17%.  There was also a notable drop in its hedge fund related operations with a 37% earnings drop on a 17% revenue drop.  This was at least offset by global wealth management, where earnings rose more than 50% and revenues rose roughly 13%.

Most of the headlines are pointing to ‘CITIGROUP NET DOWN 11%’ because of including the restructuring costs.  We normally weed one-time costs out, but these charges really appear to be more "review-based" rather than actual cuts.  If this is accurate, then the company is proving that it is not even efficient in reviewing how to be more efficient and it would make one raise eyebrows over the "actual restructuring costs" coming down the road.  Regardless of what the true job cuts come in at, it also has some serious integration and technology costs if it wants to be as modern and efficient as its competitors across the financial services spectrum.

The stock may go higher or it may settle in, who knows for sure.  Its annual meeting and review is tomorrow.  We still have NO CHANGE as far as the "Chuck Prince Conundrum," even though the company needs an operations specialist CEO & Chairman rather than a legal and regulatory one.  This is still in the middle of its 52-week trading band, and it sort of feels like the company is being rewarded for "less bad behavior" in pre-market trading.  If you give a blind man enough swings at the ball, even he may hit a homerun occasionally.

Jon C. Ogg
April 16, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.