Citigroup’s Earnings

Citigroup (C) reported third-quarter earnings today of $7.14 billion, but I’m not impressed by this earnings report. Don’t get me wrong: $7.14 billion impresses me, but not how Citi got it.
First off, it includes $2.12 billion for the sale of Travelers Life & Annuity to MetLife (MET). When you take that out, Citigroup only made 97 cents a share. That’s just one penny a share better than last year. Also, the firm lost four cents a share due to Hurricane Katrina. I’m sorry, but that’s not a “special item.” Wall Street tends to overdue it on these “special non-recurring items.” Losses from a hurricane are simply a part of doing business. Hurricanes can recur. In fact, they will.
The investment banking unit is strong, but we’ve already seen great results this year from other houses like Goldman (GS) and Lehman (LEH). It’s good that this part of the business is holding Citi up, but the core operations are sluggish. Charles Prince, the new CEO, is still working to de-Sandify the company. I think he’s doing a good job, but Citi has a long way to go.
I think that the real problem is that “Citi” as it’s now constructed doesn’t work. Big doesn’t mean better. Commerce (CBH) is so much stronger than Citi right now even though it’s around 1/40th the size. With Sandy out of the way, Prince & Co. should break up the company. The Travelers Life & Annuity sale should be the first of many more sales. A breakup will be better for shareholders, customers and employees.
Citigroup is a good example of a stock that looks cheap, but really isn’t. The firm is still on the Federal Reserve’s Double Secret Probation. Citigroup is barred from making any more acquisitions. Now that it looks like any new Fed chair will be raising rates next year, I’d stay far away from Citigroup.

Posted by on October 17th, 2005 at 2:40 pm


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