Citibank's Problems Are Far from Over

Seeking Alpha via Yahoo ^ | July 19, 2009 | Hirendu Vaishnav

[bill1952]

While there are a lot of numbers reported in Citibank's recent quaterly earnings there is ONE critical comparison that is missing -- that is the sequential analysis of the credit losses (Q1 vs. Q2).

I believe this is critical information not just for Citibank but for all financials.

First, here are the links to the Q1 report http://www.citigroup.com/citi/press/2009/090417a.htm and Q2 report http://www.citigroup.com/citi/press/2009/090717a.htm

Getting to the point on credit losses:

April 17th report: Credit costs of $10.3 billion, up 76%, consisted of $7.3 billion in net credit losses, a $2.7 billion net loan loss reserve build, and $332 million of policyholder benefits and claims.

The total allowance for loans, leases and unfunded lending commitments was $32.7 billion.

July 17th report: Credit costs of $12.4 billion, up 81%, consisted of $8.4 billion in net credit losses, and $3.9 billion loan loss reserve build.

The total allowance for loans, leases and unfunded lending commitments was $37.0 billion, up from $21.9 billion in the prior year period.

As seen from these numbers, from Q1 to Q2 -- credit costs are STILL RISING. Losses were up by $1.1B and loan loss reserve is also higher by $1.2B. Unfortunately, from these reports, we do not get details of early delinquencies vs. late delinquencies; so a greater analysis of month to month trend is not possible based on these reports (companies like E*Trade Financial provide such details).

But given that on a quarterly basis numbers are still getting worse is an indication that problems at Citibank are FAR from being over. Indeed, increasing unemployment and recent indications that early stage delinquencies may be on the rise.

For example, foreclosureradar.com's California report for June 2009, showed the HIGHEST number of notice of default on record ever. Notice of default is the "first" step towards foreclosure and is the early stage indicator of things to come.

June 2009 being worse than the entire last year and this year is indeed quite scary and banks like Citi, Wells Fargo (WFC), Bank Of America (BAC), JPMorgan Chase (JPM) etc. are more likely to be impacted by this than some of the other banks.

And this is only mid-summer. Seasonally, things get worse in real-estate late-summer and fall.

While I wish to remain optimistic, and have net long position on financials (through XLF) - it is hard to remain optimistic in light of these numbers. I have tried to hedge my long position in financials with some FAZ.

Disclosure: Long XLF, Long FAZ

[bill1952]

Apparently, real investors, as opposed to Hussein's press corps and other assorted paid cheerleaders, can read real financial reports.

[allmost]

It is bad and getting worse. No one knows where the bottom is. The altered lending standards, the financial downturn, the commercial real estate bust that is occurring, whatever Geitner et al are hiding, etc. Bank exposure to commercial ventures are ALL real estate market related.

[qam1]

but, but, but, but the Stock Market was up 5% this week

[razorback-bert]

It is just a tracking poll, don’t you know?

[Son House]

Yep, over 6 million jobs lost since Democrats took over Congress in 2006

[ViLaLuz]

Citibank can go to hell.