After seeing Citigroup’s (NYSE:C) news this morning and listening to snippets of the conference call, it seems that at 9:00 AM when shares were down 2% would have been a much easier direction to lean towards than a rally. But shares of Citigroup are now up over 2% at $47.78 on the day.  When you hear of profits dropping 60% from a financial that has had its woes for years, it is just hard to give management the benefit of the doubt even when one-time items and special circumstances are the cause.  Chuck Prince and crew have boosted loan loss reserves by roughly $2 Billion.

What I head from Prince was "I am obviously very disappointed in our results this quarter. I know we can do much better…..Looking ahead to Q4, while we obviously cannot predict market movements or other unforeseeable events that may affect our businesses, we expect to return to a more normal earnings environment as the year progresses."    I do not believe this is one-time or that the bad news is all suddenly going to be over, at least not in the manner it was stated.  But more important than my opinions and beliefs, Wall Street does believe him.  If not, Wall Street is at least relieved that this wasn’t far worse and that the company wasn’t bracing the world for far longer malaise.  One-time charges and events are forgiveable and the current environment is one where this is likely more systematic than company specific.

So we won’t be using this as another platform to ask Chuck Prince to resign or face a board revolt.  We still think he should go, but he can’t be blamed if the other corporate leaders aren’t getting beheaded too.  We still have a lot of mortgage resets coming next year and the FOMC has to watch being too generous with its interest rate policy at the risk of a currency crisis creating problems that are too hard to unwind.

UBS AG (NYSE:UBS/ADR) shares are actually up 3% in mid-day trading, despite forecasts of a loss.  Bank of America (NYSE:BAC) shares are up 0.4%, Wachovia (NYSE:WB) shares are up 1.4%, and Wells Fargo (NYSE:WFC) shares are up close to 2%.  Another stock that could be noted of interest now is that  of Fifth Third Bancorp (NASDAQ:FITB) with its $18+ Billion market cap.  That has been hitting the screen of 52-week lows  on recent trading days and was being hit harder than the overall sector.

It seems that if you are a bank holding back some baggage or some skeletons and want to go ahead and release your bad news, then today or tomorrow would seem to be when you want to throw out everything including the kitchen sink.  Wall Street might even pat you on the back for it.

Jon C. Ogg
October 1, 2007

Jon Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

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