Citi Keeps Pulling Rabbits From The Hat (C, MS)

Citigroup, Inc. (NYSE: C) is so far a winner this morning after a “more than acceptable” earnings report.  The troubled bank and financial supermarket posted a net profit at $1.59 billion on items, but the net loss for shareholders came to -$0.18 EPS after reflecting the conversion of $12.5 billion in convertible preferred stock.  Revenues for the quarter were $24.79 billion.  Thomson Reuters had estimates as -$0.34 EPS and $21.94 billion in revenues.

Citi is finalizing definitive documentation with over a preferred share exchange with a liquidation value of up to $25 billion for interim securities and warrants.  Progress has been made but has not yet been completed.  This also throws a wrench in the machine for the arbitrageures because this is now being put off until the completion of the industry stress tests.  Citi will be paying full dividends on the preferreds until the closing of the public exchange and it has reconfirmed that it does not plan to stop distributions at current rates on its Trust Preferred and Enhanced Trust Preferred shares.

Shares have comne off of highs, but we are still seeing gains of well over 10% pre-market.  The last trade at 7:24 was $4.60, and that is after a $4.01 close on Thursday.

We’ll follow up on its progress with Morgan Stanley (NYSE: MS) on the brokerage arm later.

The amazing part is that Citi is up 300% from lows and so many other banks have made massive runs in just six weeks from te lows.  Despite the notion that these were all oversold, there seems so far to not be much sell-the-news.  If this holds, we are going to have a sixth consecutive week of a rally rather than just a fifth.

JON C. OGG