Citigroup: Forget Earnings, Look At Its Plan (C)

Citigroup (NYSE: C) is set to report earnings tomorrow morning.  While this will be the first of the big money center banks and financial conglomerates to officially report earnings, the actual earnings may be irrelevant.  Analyst targets are all over the place and consensus is for earnings to actually show a loss at -$1.00 EPS on revenues in the ballpark of $10.6 Billion.  The honest truth is that looking backward and making the actual projections for this last quarter and maybe this next two quarters is ultimately just guesswork and by now it would be hard to imagine ANY bad number being that big of a shock.

We had been working on a full preview ahead for this one and other financials this week and next, with the focus on what Vikram Pandit was going to show us in his debut earnings call as far as the future of the company.  He HAS TO be aggressive and stern (and maybe ruthless) to win Wall Street over.   

Charlie Gasparino of CNBC just made a key announcement on CNBC.  Gasparino said that Vikram Pandit will indeed show a plan for the company at tomorrow’s Town Hall meeting.  But he also noted that writedowns would be roughly $24 Billion. In addition, Gasparino noted an expected layoff plan of some 17,000 to 24,000 over the coming year; although he noted many would be from attrition or from business unit changes or divestitures.

We had made some of our inquiries with industry contacts over the last week and this is actually well within the numbers we came up with.  What we had calculated based upon conversations and other pondering pieces was something to the tune of a "Mark to Market" writedown (and an immediate challenge of mark to market versus "mark to model") of roughly $20 Billion in writedowns.  We still think these numbers are systematically guesswork.  We were actually under the belief that Pandit would take more than 20,000 jobs with the potential for up to 30,000; although that number from us would be from divestitures, attrition, AND raw layoffs.  Chuck Prince already tried to make some concessions there last year.

While Wall Street would cheer a break-up of Citigroup, it just doesn’t seem like that is going to be in the cards.  To make matters tougher, a break-up by Citigroup might not shield each unit from master liability damage awards down the road as the entire entity today is in theory at risk of lawsuits from shareholders and creditors alike.  Citi’s shares are up almost 1% at $28.82, still close to a 52-week low of $26.50.  The sector has been depressing enough that we won’t even note the real highs over the last year, but it was above $50.00.

Jon C. Ogg
January 14, 2008