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More good news from the economic front this week. Today Citigroup reported $4.4 billion in profit for the first quarter of 2010. This comes after reporting losses during 8 of the last 9 quarters. Even executives at the company were surprised by these profits. Citigroup received two large government bailouts during the financial crisis and the government still has 27% ownership of the firm. The Treasury Department has stated it will begin selling its 7.7 billion shares and allow stockholders to regain control of the company. However, since there are so many outstanding shares of the company it will take a long time for stock prices to rise to their pre-crisis levels.
Citigroup has had to change many of its accounting practices and is still under the government's watchful eye but I think this is a good sign for the company and the economy. Do you think this is encouraging that there may be a light at the end of the tunnel?
The full article is here:
http://www.nytimes.com/2010/04/20/business/20citi.html?pagewanted=1&src=busln
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Well, from working at Bank of America I can't remember exactly what our earnings were but I belive it was between 2 and 3 billion while is a huge raise because we reported losses for both the 3rd and 4th quarter of last year. We have paid back all of our TARP funds, so it seems like banks are getting back on their feet.
ReplyDelete"The bank has plowed more money into its international businesses and increased the amount set aside for its bonus pool."
ReplyDelete-Is this really good for our American economy then? It seems like big bonuses (only given to a select few) have been a problematic during the recession.
And also,
"The strong revenue that Citi recorded in the first quarter was an indication of its capabilities but stopped short of saying the bank could replicate its recent success. Realistically, we do not expect our performance to follow an invariable trend line upward"
-This just sounds somewhat shady to me. If they're doing so well, why wouldn't they be able to continue this upward trend that our country needs? It makes me wonder the legitimacy of their current gains...
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This is a great sign if: it doesn't derail financial regulation, the growth in the company is moderate and not extreme, and the corporation has been sufficiently restructured to be stable and safe going forward. Even better, the government will begin recouping some of the expenses of the bailout and tax payers will recoup some of their expenditures (although not likely directly.)
ReplyDelete"Citigroup has had to change many of its accounting practices..." Well I would hope so. This is encouraging, and hopefully the next three quarters will bring a trend going upwards. We will see how successful the restructuring is over the long haul. I would say I think this is at least a flicker of light at the end of the tunnel, we will see if it is a mirage over the course of the next few quarters.
ReplyDelete“Citigroup, because they have had a pistol to their head, has been forced to do a lot of hard work.” It's about time that more companies with government stake in them have the "pistol to their head." It's encouraging to see that the government will begin selling shares of the company back to private investors. It's also encouraging to see that the government required the company to put 2 billion into assets meaning the true profit is masked but for a good reason. Hopefully the same will soon be true for GM which has 60 percent government ownership.
ReplyDeleteI think that this great that one of the larger banks is finally getting back on their feet. Hopefully they will be able to keep profits going but as Dana pointed out they are not sure that they will be able to, which is a little disconcerting. Also I think that this is encouraging that the government will at least be able to recoup some of their bailout money, even though it will take a little bit.
ReplyDeleteI hope the "pistol to their head" mentality achieves positive results with good business practices. Based on recent bank behavior, it wouldn't be shocking to see banks alleviate pressure to pay back money through shady means. However as long as the government is closely monitoring their behavior this situation will most likely never happen. I also think the growth needs to be gradual as they transition themselves away from government ownership.
ReplyDeleteGenerally, I agree with what Adam said. Of all the banks, I think Citi is really the only one that has had a pistol to their head and actually made some changes. Because of the large government ownership and multiple bailouts, management has had to make changes to make the company less risky, and that is a good thing.
ReplyDeleteHowever, I absolutely don't think we can just celebrate and call it a day. Citi is nowhere near paying the government back for all of its help. On top of the money owed and the government's ownership of the company, the government has made concessions that essentially amounted to free money for Citi. I posted a WSJ article that detailed one example where the government's preferred shares (which have dividend payments) were converted into common stock (which do not). I wonder how profitable Citi would have been if they had to still make those dividend payments.
I feel like this is encouraging news but as they stated they are 8/9 on quarter losses and after what they still owe they have an uphill battle to finish. I agree with most of you that it is disconcerting to hear they are not very optimistic about their future results but maybe that is them just being cautious
ReplyDelete