Citi sucks, is up 7%

Read this dispatch from MSN Money. Read it twice if you have to. I did. Citi did worse than expected, and people see this as a good sign. What sort of perverse logic leads to this conclusion? As the article states, investors have chosen to interpret this as a bottom. Forgive me, I'm a little slow, but haven't people been calling a bottom in financials every quarter for a year? Don't investors foolishly believe that the worst is over with every new rash of write-downs or shotgun wedding mergers?

CEO Vikram Pandit is saying the right things. He's going to axe people. He claims that they are going to get back to basics, the usual we're going to stick to our knitting rhetoric that any new CEO announces after he replaces a guy that did the exact opposite.

This reminds me of NFL hiring practices. Every offseason, there are about four head coaching positions available. Two of those teams will want a taskmaster who will get tough with the players. The other two will want a "players coach" who will keep things relaxed.

CEO hirings are no different. American companies alternate between hiring vision guys or operations guys. Sandy Weill was the classic charismatic CEO that the 1990s business turned into a messiah. Unfortunately, he went a little too far with his vision. So the board hires Chuck Prince, the loyal soldier/counsel who spearheaded the bank's efforts to make nice with regulators. Then he got cute and got in over in his head with derivatives exposure.


So in comes Vikram Pandit, who cut his teeth at Morgan Stanley as an investment banker. He's got some tough guy plan to return Citigroup to its past glory. He'll have a 1-2 year honeymoon before the press and shareholders really start to grade his performance. In the meantime, all he need do is talk tough, slash the payroll, and wait for the market and/or the Fed to save his skin. If that happens, then he ends up looking like El Cid.

It is interesting that twice in a row, Citigroup has went with a non-banker, non-CEO to lead the company.

Citigroup Q1 2008 earnings release.

Citigroup earnings down 57%. Duh!

They pre-announced two weeks ago and came clean about how bad business was. The market loved them for it. Now the call comes out and they get hammered. Still, they say the market is efficient! Here's the transcript for the Citi earnings call. There is very little new information. The writedowns were a bit worse than the they thought, but not by a shocking amount. The earnings actually came in higher than expected. If you take the time to read the transcript, you'll find out that Citi is actually growing fairly nicely, a lot of it organically. They are expanding significantly internationally and high margin businesses like Global Wealth Management is growing at a good clip. This company is executing, but no one cares to notice. Chuck Prince is not Sandy Weil. This is not the 90s. Analysts need to de-anchor their thinking from that era.