staff and news service reports
updated 3/10/2009 2:54:24 PM ET 2009-03-10T18:54:24

Embattled Citigroup Inc. surprised Wall Street Tuesday with news that the bank company has operated at a profit in the first two months of the year. But despite the upbeat news, Congress and the Fed continue to review strategies for dealing with a further deterioration of the troubled global banking giant.

Citigroup CEO Vikram Vikram Pandit said late Monday in a memo to employees and clients that  during the first two months of this year the bank had its best performance since the third quarter of 2007, when the credit crisis first triggered a wave of losses in the industry.

Pandit's memo said the company had generated $19 billion in revenues in January and February "excluding externally disclosed marks." A Citi spokesman said the company arrived at the profit figure by subtracting $8.1 billion in expenses for the two-month period, along with taxes and any one-time gains or losses. The spokesman did not provide details on those items.

Still, the memo helped provide the battered banking industry with a hopeful piece of news and helped lift the stock market. Citi stock, which had been hovering at about $1 a share, jumped by 40 cents. Other banking stocks also were higher, and the broader market was enjoying it best session in weeks.

But Citibank is hardly out of the woods yet. A report in The Wall Street Journal, citing people familiar with the matter, said that government officials have been looking for new ways to stabilize the bank should further problems arise. The Journal said the discussions are preliminary and wide-ranging, addressing possibilities that government officials do not expect to occur.

Also Tuesday, Federal Reserve Chairman Ben Bernanke called for a revamp of the country’s financial regulatory system. Speaking before the Council on Foreign Relations, Bernanke said  companies that are “too big to fail” must be subject to more rigorous supervision to prevent them from taking on excessive risk. Bernanke’s remarks come as the Obama administration and Congress begin to devise their strategies for overhauling regulation.

Citi has been among the hardest-hit banks by the ongoing credit crisis and recession. It has been forced to take tens of billions of dollars in write-downs and loan losses since late in 2007 as the value of its investments plummet and more customers fall behind on repaying loans.

The New York-based bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.

Late last month, in its third attempt to rescue the bank from collapse, the Treasury Department moved to take up to a 36 percent stake in Citi. The government will convert some of its $45 billion in preferred stock into common shares and is looking for private investors to contribute as well. Those new shares will dilute the value of stock issued before the conversion; if the maximum amount of preferred stock is converted, current common stockholders will see their ownership stake fall to about 26 percent.

The government has also agreed to cover a some of Citi’s losses on hundreds of billions of troubled assets and loans as tries to right itself.

The government’s investment has helped shore up the bank’s capital base, adding as much as $81 billions to the bank’s so-called “tangible common equity.” In his memo, Pandit said that would make Citi “the strongest capitalized large U.S. bank,” based on that measure. Ion his memo, Pandit said the bank’s deposits are “relatively stable.”

Government regulators are in the middle of a series of “stress tests” to determine how well the loans on the books banks that have take government bailout money can withstand a more severe economic downturn. Pandit said Citi is doing its own “stress test” on its portfolio of loans and investments backed by loans, using scenarios that are more pessimistic than the government’s.

Citi has been working in recent months to return to profitability. Among its plans, the bank is shedding assets and reducing staff to streamline operations. Citi has already announced a plan to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley.

Citi is also pursuing a plan to split its operations, separating the traditional banking businesses from the riskier operations that have been the primary driver of losses in recent quarters.

© 2013


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