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Citigroup (C)
Citigroup Surprises Wall Street
Among a sea of better-than-expected earnings another big bank came out on top during the second quarter earnings season. Citigroup, Inc. reported an astonishing $4.28 billion profit for the second quarter. It's funny how a positive quarter can change the outlook for a company so quickly. It was only a few quarters ago that analysts were skeptical regarding the future of Citigroup. How was the company able to deliver such impressive results for the second quarter? Will the company be able to maintain these kinds of results in the near future?
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| Stock Analysis |
Some investors and analysts are secretly breathing a sigh of relief after receiving better-than-expected results from Goldman Sachs (GS: Charts, News, Offers) and Citigroup (C: Charts, News, Offers). This comes as no surprise given the major influence these companies had on the market last year. Although the financial sector has been improving over the last few months, investors were definitely not expecting things to start shaping up as quickly for the financial giant. Citigroup was one of the hardest hit companies during the financial downturn. Citi received $45 billion in government bailout funds and is currently in the process of allowing the government to acquire a 34 percent stake in the bank. So how was the company able to jump on the bandwagon of better quarterly results? Citigroup can attribute most of its success during the second quarter to selling its control in Smith Barney. Citigroup recorded an after-tax gain of $6.7 billion on the sale of a majority stake in its Smith Barney brokerage unit to Morgan Stanley (MS: Charts, News, Offers). The deal closed June 1 put Citi's Smith Barney unit together with the trading division of Morgan Stanley. How will the company maintain profits in the third quarter if this was simply a one-time transaction that resulted in a significant gain?
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Citigroup is hoping that the divisions that they chose to keep are the most valuable ones and will eventually deliver the best results for the company. Chief Executive Officer Vikram Pandit is confident that the businesses that he chose to keep, which will be grouped together under Citicorp, will deliver the best profits for the company. Pandit said “We have made significant progress in recent quarters as evidenced in the significant decline in expenses, headcount, assets, including Citi's riskiest assets, as well as our 12.7 percent Tier 1 capital ratio”. The company is still facing an uphill battle as the industry tries to stabilize and consumers continue to become delinquent on loans. The issue of credit appears to be the most pressing one at the bank. Credit costs skyrocketed in the quarter, climbing to $12.4 billion, mainly due to loan losses.
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The future still remains a little foggy for the company. If unemployment continues to rise, the company will no doubt face more and more loan losses from businesses and consumers. Citigroup will definitely have to roll back its sleeves and fight with everything is has to come out on top again. Investors will definitely be keeping an eye on the company in the coming months. Citi shares rose 2% in pre-open trade.
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Profile |
Click here to view a detailed profile of Citigroup.
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