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Citi Sees Profits Rebound Despite Economic Gloom

The troubled bank provided Wall Street’s long-awaited rally.

It was the least bank that anybody would have thought reporting a profit. Citigroup CEO Vikram Pandit sent a memo to his employees that stated the bank’s impressive profits for the first two months of the year. The Dow Jones reacted and earned a 379-point uptick last Monday. Analysts’ views were varied since the Wall Street has only experienced a two-week bullish run and pinning hopes on a major recovery may be too early as of today. Some publications have quoted investors and analysts regarding the news.

In the New York Times, Michael Mayo of Deutsche Bank states, “Citi is not out of the woods. It is certainly good news that Citi is profitable, but I would not overplay the positives.” said Michael Mayo, a financial services analyst at Deutsche Bank. “They still have write-downs and an increase of problem assets, and they are still dependent on what the regulators do.” On the other hand, Marc Stern of Bessemer Trust sees it as a source of recovery. He quips, “When stocks have been battered as much as they have, it doesn’t take that much good news to move them forward. This isn’t a green light to investors, but the tone is much more constructive now.”

In Businessweek, Harry Rady of Rady Asset Management opines, “There’s nothing that anybody can do to turn the market around. This is just a little bear market blip.” John Merriman of Merriman Curhan Ford sees it as a positive sign. He states, “Maybe Citibank is not going to zero, that means it’s going to lend again and then the economy will turn,” he said. “People today in the stock market are connecting those dots. And the market is up broadly, it’s not just the banks.”

And with this upturn in Wall Street, even homebuilder companies posted strong showings at the close of the market. Lennar Corporation in Miami saw its stock price go up by 21.3 percent while D.R. Horton’s stock rose by 14.7 percent. Dallas-based Centex Homes had a 17.9 percent stock price increase and Hovnanian Enterprises’ stock rose by 3.3 percent.

The problem with short rallies like this is that it could be an impending sign of market downturn in the following months. Indeed, these are mixed reactions. Remember, the government has increased its assistance to Citi last month. The bailout fund that the bank has received has ballooned to $45 million already. That should be enough reason as to how it may face declines in the value of its assets and realize that its profits are just temporary.

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