Investopedia: More, Better, Faster Please

If a part-time investor can read all of Citigroup's (NYSE:C) earnings and not get a headache, that is an impressive accomplishment. After all, just consider the impact of credit value adjustments (CVA) in this period - Citi incorporated a $1.1 billion loss into its earnings because its debt actually became more valuable. So, things are getting better at Citi, and that causes them to recognize a loss. That is just part of the fun-filled, anything-but-logical world of bank accounting, but investors who can maintain the patience and inner peace to look through all of this might still find an interesting recovery/rebound prospect in this stock.

The Quarter That Was
Okay, here is a quick run-down of the major salient points of Citigroup's fiscal fourth quarter earnings. Revenue (excluding that CVA) was down about 6%. Weakness in investment banking (fixed income revenue was down almost one-third sequentially) certainly hurt, but a 3% net interest income was pretty feeble in its own right, as was the decline in net interest margin to below 3% (2.97%). Consumer banking was "stable" overall as pretty good overseas performance covered up for a 5% decline in North America.

Credit was better, as the NPA ratio improved 44 basis points (to 3.25%) and the NCO ratio declined as well, as non-performing loans dropped 13% sequentially. Feeling better about credit, Citi released about $2.3 billion from its loan loss reserves (that is, the company's charge-offs exceeded the provisions it took for bad debt), with a little more than half of that coming from the consumer business. On the other hand, the company is having to build its litigation reserves - a common issue these days for large banks like Citi, Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC) and others facing legal disputes with mortgage borrowers, mortgage insurers (like Assured Guaranty (NYSE:AGO), and mortgage buyers like Fannie and Freddie.

More Trouble Still to Come?
Speaking of Freddie and Fannie, Citi may not really be out of the woods here just yet. The company spent about a quarter-billion dollars this quarter buying back mortgages, but a Bloomberg report suggests that Citi has still been selling an unacceptably high percentage of bad loans to Freddie. Still, it would seem likely that the worst of the mortgage repurchase issue is over for Citi, at least as it pertains to the GSEs Fannie and Freddie. After all, if Bank of America got a pennies-on-the-dollar deal, why would Citi not expect the same? 


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