Of all the financial firms which are to report earnings this season, Citigroup (NYSE: C) may have been the most important. The rumors about the bank have been crazy. Projections about losses have been in an extremely wide range.

Yesterday, CEO Pandit said he could cut 20% of the financial service company’s operating expenses. The would seem impossible without firing 50,000 people, but he means what he say.

Citi showed that it was not at death’s door by reporting a net loss for the 2008 first quarter of $5.1 billion, or $1.02 per share.

Results include $6.0 billion in pre-tax write-downs and credit costs on sub-prime related direct exposures. Results also include write-downs of $3.1 billion on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1 billion increase in credit costs in global consumer.

Revenue was 13.2 billion, down 48%, largely driven by significant write-downs in sub-prime related direct exposures in fixed income markets and highly leveraged finance commitments.

In other words, the bank flushed out every bad paper it could find.

Two pieces of good news stood out. Record revenues in transaction services, up 42%, and record net income, up 63%. Smith Barney revenues increased 18% and Private Bank revenues grew 10%.

Citi also said it would sell assets as necessary. The portions of the company which are doing well are very valuable

What Pandit did not say was more important than what he did say. He made no mention of the bank being in deep trouble. He did not point to more massive problems.

His silence on those subjects spoke volumes

Douglas A. McIntyre

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