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Half Of Citi Pretax Income Over Past Two Years Comes From Loan Loss Reserve Releases

Tyler Durden's picture




 

Wonder why nobody trusts bank numbers, and why US financial institutions trade at some fraction of book value? The chart below should explain a big part of it. As can be quite vividly seen, of the $28 billion in pre-tax net income from continuing operations "generated" over the past two years, exactly half, or $14 billion, has been due from a simply accounting trick, namely the release of loan loss reserves, which have been positive for 8 quarters in a row, and which in the just completed quarter amounted to more than the actual pretax number, confirming EPS would have been negative absent accounting trickery (source). One wonders what happens to Citi Net Income once the world openly re-enters a recession, and releases have to become builds again... And for those who enjoy the myth of reported numbers, and are trying to reconcile the resurgence in bank stocks with abysmal earnings, yet wish to understand why Citi has let go the well known Rohit Bansal, and Chris Yanney, who headed the bank's distressed and HY trading respectively, below is also a chart showing the dramatic collapse in the bank's Securities and Banking revenue which just came at the lowest in the past two years, with Norta American top line in particular being decimated.

Loan Loss Reserves Release vs Pretax Net income:

Citi Securities and Banking Revenue:

 

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Tue, 01/17/2012 - 09:46 | 2070691 Flesh Wound
Flesh Wound's picture

Why would you invest in this sector?

Tue, 01/17/2012 - 09:49 | 2070703 HedgeAccordingly
HedgeAccordingly's picture

S&P futures have moved 100 handles on the dot from December 20th till today

 - http://hedge.ly/wwU0Ze

Tue, 01/17/2012 - 09:53 | 2070721 kridkrid
kridkrid's picture

I don't, but in the midst of our just getting started economic collapse, if you are to choose a sector in invest in, I suppose the sector that gets to make the rules wouldn't be my last choice.

Tue, 01/17/2012 - 10:08 | 2070763 CPL
CPL's picture

You are assuming that the "soft" landing is actually available.

 

We are long past that point.  Now it's the point of counting parachutes and not informing the passengers about the situation.

Tue, 01/17/2012 - 10:15 | 2070783 kridkrid
kridkrid's picture

No, I expect a horrific firery crash landing... I'm not interested in any sector... just saying that, relative to other sectors, I think the bankers can squeeze the remainling life out of the host better.

Tue, 01/17/2012 - 10:18 | 2070792 Thomas
Thomas's picture

Anybody else out there have the urge to simply stop reading anymore of this shit? I have been a bear since June 1998, and I am exhausted. I am not a sore loser, having profited handsomely from my twisted views, but I gotta tell you I cannot read one more scam or see one more step toward fascism without tasting vomit in my mouth.

Tue, 01/17/2012 - 10:23 | 2070816 The Deleuzian
The Deleuzian's picture

Ya...It's pathetic...bullish for Maalox!

Tue, 01/17/2012 - 10:24 | 2070823 Everybodys All ...
Everybodys All American's picture

The feeling is mutual. It is amazing how many people are willing to turn a blind eye to this outcome isn't it.

Tue, 01/17/2012 - 11:56 | 2071156 ucsbcanuck
ucsbcanuck's picture

Consumer staples are the way forward - everyone needs to buy groceries somehow. Dollar Tree, Wal Mart etc.

Any thoughts on Nat Gas? Are people going to see what is going on now as an opportunity for the future.

Tue, 01/17/2012 - 09:59 | 2070738 francis_sawyer
francis_sawyer's picture

Why would you invest in this sector?

Because Dick Bove comes across so 'grandfatherly' on TV...

Tue, 01/17/2012 - 10:01 | 2070744 Stax Edwards
Stax Edwards's picture

Exactly.  Debating getting back short again.  Crap earnings while not even marking to market? Give me a break.

Tue, 01/17/2012 - 09:47 | 2070698 Corn1945
Corn1945's picture

ZIRP is killing the banks. They can't make money.

Tue, 01/17/2012 - 09:49 | 2070702 LawsofPhysics
LawsofPhysics's picture

You forgot the < sarc > tags.  Yeah I wish I could get money for near 0 %.  I'd buy bonds at 1.9 % and make a killing, oh wait.

Tue, 01/17/2012 - 10:09 | 2070766 CPL
CPL's picture

Cool trick how they make IOU's into more IOU's isn't it?

Tue, 01/17/2012 - 11:13 | 2070989 BorisTheBlade
BorisTheBlade's picture

Issuing IOUs is not tricky, tricky is to convince others to play the game and accept IOUs as something legitimate.

Tue, 01/17/2012 - 09:52 | 2070713 falak pema
falak pema's picture

they can't make money cos of debt mountain; Zirp is their band aid. But they keep putting it on their "wooden" leg...That's why bankers are a race apart.

Tue, 01/17/2012 - 09:56 | 2070733 Monkeyfister
Monkeyfister's picture

Yeah-- that has to be sarcasm. The Banks are borrowing from the FED for free, and lending back to the .gov, each other (and sometimes even to Main Street) at 4-6%. How-- HOW, I ask you, can anyone make money like that, eh? xP

Tue, 01/17/2012 - 09:48 | 2070700 VisualCSharp
VisualCSharp's picture

Holy run-on sentences, Batman, but in other news, ZeroHedge writers, who digress far too much (in their posts), need to use periods more often, lest their posts end up becoming unintelligible, much like many of ZeroHedge's commentors, who don't digress as much, but I digress.

Tue, 01/17/2012 - 09:53 | 2070706 We need Geronimo
We need Geronimo's picture

Suck it.  Two words + period.  Happy?

Tue, 01/17/2012 - 09:52 | 2070717 UGrev
UGrev's picture

I noticed this (lack of periods) more than the content of the article. 

(a fellow C# dev.. in case you missed this: http://msdn.microsoft.com/en-us/netframework/hh403373)

Tue, 01/17/2012 - 10:03 | 2070745 We need Geronimo
We need Geronimo's picture

Could you code monkeys please take your bit drivel to a Yahoo forum?  They use short sentences over there, which I am sure will make you feel more comfortable.

Tue, 01/17/2012 - 10:11 | 2070773 kridkrid
kridkrid's picture

not to mention, it's actually a great sentence... it highlights the absolute abusdity of the charade...

As can be quite vividly seen, of the $28 billion in pre-tax net income from continuing operations "generated" over the past two years, exactly half, or $14 billion, has been due from a simply accounting trick, namely the release of loan loss reserves, which have been positive for 8 quarters in a row, and which in the just completed quarter amounted to more than the actual pretax number, confirming EPS would have been negative absent accounting trickery (source).

Tue, 01/17/2012 - 10:21 | 2070812 UGrev
UGrev's picture

I suppose punctuation is completely un-necessary. If I could have only seen into the future, I would have skipped English class in lieu of something more useful such as "how to be so verbose that you become incomprehensible". I'm sure it would have been far more worth it. 

Tue, 01/17/2012 - 10:49 | 2070882 We need Geronimo
We need Geronimo's picture

This isn't English class.  I don't come here for the punctuation (or thr spelling). Whining about the style of the message in the comments section while posting a meaningless comment taking up peoples precious time is generally frowned upon and posting a link to a Microsoft page first thing in the morning really pissed me off.

Tue, 01/17/2012 - 11:26 | 2071030 UGrev
UGrev's picture

Are you fucking serious? I come here to read comprehensible material, not giant run on sentences that require me to virtually add puncutation in an attempt to decipher what the author intended to say with proper context. 

As for the link? No one made you click it. So go take your piss someplace else. 

Tue, 01/17/2012 - 10:20 | 2070800 a growing concern
a growing concern's picture

Try reading Faulkner. Then get back to me.

Tue, 01/17/2012 - 10:27 | 2070836 The Deleuzian
The Deleuzian's picture

Joyce....Burroughs...

Tue, 01/17/2012 - 09:50 | 2070705 LawsofPhysics
LawsofPhysics's picture

Mark to fantasy forever!

Tue, 01/17/2012 - 09:52 | 2070712 Dorky
Dorky's picture

As long as the fake accounting figures continue to look good, who the fuck really cares?

Everything is based on fake accounting - GDP, unemployment, etc...

Who the fuck cares?

Nobody.

Tue, 01/17/2012 - 09:55 | 2070728 kridkrid
kridkrid's picture

that's right... get comfortable with the lies, cause that's all we got.

Tue, 01/17/2012 - 09:56 | 2070730 UGrev
UGrev's picture

I'm at the point where this is all just a big circus to me. I've been preparing (probably not enough however) since 2008 for the final nail in the coffin. The closer I get to where I feel I need to be, the less I give a shit. Oh, I still keep a watchful eye, but I just don't worry about it as much. It ends up being an "Oh, look how much they're fucked now" type of thing rather than a "Oh shit.. we're all going to get bent over and fit OMG!!RUN!!!"

Tue, 01/17/2012 - 09:52 | 2070718 Monkeyfister
Monkeyfister's picture

It needs to be stated, over and over, that the only thing keeping CITI alive right now is the fact that it is holds the (soon expiring) Purchase and Travel Card Contract for most of the US government. Kick out that crutch, and it would crumble faster than a sand castle at high tide.

Tue, 01/17/2012 - 09:54 | 2070723 The Deleuzian
The Deleuzian's picture

The big banks are more or less begging for more QE...Whether on purpose or just circumstance....

Tue, 01/17/2012 - 10:00 | 2070741 Stax Edwards
Stax Edwards's picture

One of Bernank's benchmarks for 'healthy recovery' is TBTF's being able to raise equity. This is QE bullish if we squash them again

Tue, 01/17/2012 - 10:03 | 2070746 PontifexMaximus
PontifexMaximus's picture

Bullish for the market!

Tue, 01/17/2012 - 10:09 | 2070767 The Deleuzian
The Deleuzian's picture

This is one of those times that really bad economic, earnings, and employment #'s will be bullish for stocks...The more bad news, the higher the averages go...Everyone will be expecting the Fed's help in a big way...It's rationalized in that they have suffered enough and they deserve it...

Tue, 01/17/2012 - 10:19 | 2070796 DannyTX
DannyTX's picture
Priced in----what a stupid term.  We have seen market resilicancy in the past during events that should be negative, but nothing like this.  Everything is "priced in".    Bob Piss--onni on CNBC used to ALWAYS, EVERY SINGLE DAY, say watch the financials.  Whatever the financials do the market does.  Last week J.P. Morgan bombed.  Today CITI shit in the bed.  And, due to book cooking the CITI news was actually better than it should be.   An Atomic bomb could fall on Wall Street and it would be priced in. 
Tue, 01/17/2012 - 10:20 | 2070799 GMadScientist
GMadScientist's picture

I'd definitely insist on getting my hourly up front, if I was so unfortunate as to have to litigate for Shiti.

Tue, 01/17/2012 - 10:21 | 2070803 Schmuck Raker
Schmuck Raker's picture

How does Citi expect to get away with this?

Do they really think attention spans of investors are so shor.....OH LOOK, FilipinoCupid.com has a new ad!

Tue, 01/17/2012 - 14:35 | 2071746 covsire
covsire's picture

The game is to buy time so you can get rid of the evidence and cut your losses, like a thief or murderer who knows the cops are on the way and starts destroying any possible thing that can hurt his freedom.  The finest cut hopium is that there will be no further downturn in the economy, the equivilent of the investegator getting killed on the way to the crime scene.  The contingency plan is to get rid of many toxic assets (akin to destroying evidence) before the cops do show up.  If things shape up auto-magically, then you start using real money to make fake accounting go away and pretty soon you're well on your way to the next disaster.

Tue, 01/17/2012 - 10:21 | 2070807 kralizec
kralizec's picture

OMG, reserve releases!

Only in banking?  (rolling eyes)

Ahh, no.  Everybody does it.  As long as accounting rules allow booking reserves in anticipation of losses, then releasing them when the threat lessens should not be a surprise.  Since they hit the P&L when booked, this just puts them back to where they should have been.  I would rather see them released so a clean balance sheet can be looked at.

If there is sandbagging going on that is another debate, but to shriek in horror at the concept of reserves and act like it only happens in the financial sector is overly dramatic.

 

Tue, 01/17/2012 - 10:29 | 2070843 Tyler Durden
Tyler Durden's picture

Funny since all the losses were "booked" in the one quarter which everyone has long written off because it was "horrible for everyone": Q4 of 2008. Even funnier is how banks have been getting a benefit for that quarter's losses for over 3 years now... But you are spot on - everyone does it.

Tue, 01/17/2012 - 10:37 | 2070871 kralizec
kralizec's picture

Indeed, I do not discount the possibility of games being played as to timing and amount.  And even looking at their external audit workpapers on reserves may not reveal much of any worth.  People looking at financial reports need to be able to understand how and why things are done and cast their own opinion as to intent on any action.  Of the latter, looking at Citi's senior leadership is what you have to go on.

Tue, 01/17/2012 - 10:42 | 2070889 kridkrid
kridkrid's picture

Good post, and perhaps this is much to do about nothing.  My company does the same thing (software).  But the trickeration of the eCONomy remains the same.  I remember having lunch with my CEO when he said something like, "debt doesn't matter, it's always about cashflow".  This really is all a charade.  All players in the economy are levered up on debt (consumer, corporate, gov't) and everyone is playing a game of pretend, hoping that they can outlive their liabilities (or grow out of their liabilities).  

Tue, 01/17/2012 - 10:46 | 2070901 kralizec
kralizec's picture

Yeah, things have changed, and not necessarily for the better.  Business leaders used to be a lot more discriminating in the use of leverage, but the purveyors of "easy money" made risk meaningless and now debt is too often used as a means to hide problems instead of as a targeted means to build and grow a business on sound fundamentals.

Apparently I am a dinosuar for not wanting to join that bandwagon to hell.

Tue, 01/17/2012 - 11:01 | 2070950 kridkrid
kridkrid's picture

The intellectual switch to click if you want to join the bandwagon to hell is the idea that debt is not a means to an end, but the end itself (and the beginning).  It doesn't matter if the debt was used to hide problems or for "strategic" aquisitions... what matters in our monetary system is that aggregate debt grows.  Virtually all "money" in our system starts as debt with interest tied to it (fiat money plus fractional reserve lending).  The banks create the money, but more money must be generated in order to pay principle plus interest.  So the entire system is built around the ability to roll debt forward by issuing new debt.  

The SYSTEM doesn't care who takes on the debt (consumer, corporate, gov't) only that it grows.  http://s3.amazonaws.com/data.tumblr.com/tumblr_ltmyj0zTGz1qb95l3o1_1280.... - you can see the growth... it's all quite simple, really.  When the cost of maintaining the ever increasing debt load becomes too great, you enter into cascading defaults... we are almost there... that is the bandwagon to hell.

Tue, 01/17/2012 - 11:21 | 2071013 kralizec
kralizec's picture

You just accurately defined a Ponzi scheme.  When it unravels...

Tue, 01/17/2012 - 11:37 | 2071068 kridkrid
kridkrid's picture

Which is what our economy is built on.  People take offense to this notion because maybe they work for a real company that produces real things that people really want.  Or maybe they own some local business and people happily choose their establishment for a meal, or a haircut or for an auto repair, etc.  Real commerce happens, to be sure, but the system we have selected to facilitate economic interaction is, in and of itself, simply a Ponzi scheme.  

The "system" needed to get creative with ways to expand debt.  Sucking people into a real estate bubble was good... cheap money, and the scenario you described above was good, but the wheels have pretty much come off.  I believe that the last easy target is government.  Government has conveniently built in certain throttles to make this somewhat automatic.  When the current administration claims that increased gov't spending is built into the equation when the economy falters, they are correct.  Unemployment compensation, food stamps, etc.  Of course, wars help the cause here as well.  But the larger macro game, at the end of the day, is how to keep the debt expanding and the ponzi scheme alive.  I thought we were done in 2008... but now I recognize our collective capacity to deny reality.  This can go on... until it can't... then it's going to be hell.

Tue, 01/17/2012 - 16:08 | 2072032 kralizec
kralizec's picture

At some point kicking the can down the road will not work, the can will be so large it won't budge.  Then, as some like myself are fond to say "reality is not an option" takes over and that reality will hit everyone in the face like a sledgehammer.  Hell is coming.  The PTB's that brought us here are incapable of reversing course, the politicians fear austerity and the paralysis is cutting off all reason.  Yup, hell is going to have a party.

Tue, 01/17/2012 - 10:42 | 2070893 adr
adr's picture

Hey if we can just fake everything, well we're fine. I anticipate taking a $100khit on my home so let me declare that loss on my taxes for the next ten years. Corporations fake sales and fake earnings and get away with it. Obama has made it clear Wall Street gets a pass, however Mr. middle class gets the book thrown at them. Any deduction or attempt to withdraw cash from a bank is grounds for an audit. Directors authorizing a stock buyback 10% higher than market value so they can all sell shares at inflated prices is fine. A person making $50k a year deducting a charitable cntribution is getting a spiked IRS rod up the ass. My accountant is going insane, common deductions now need a paper filled out in complete detail by the taxpayer. Missing one small detail will end up with an audit. The government won't get rid of common deductions but they will make it so hard to claim that nobody will. Boom, more tax revenue plus major witholding penalties.

Tue, 01/17/2012 - 10:52 | 2070923 kralizec
kralizec's picture

You appear to sound like many small businessmen I've advised in the past.  I completely understand your angst.  Avoidance behavior (of taxes, regulations and paperwork) reigns supreme.  It's hard enough keeping a concern going, but small players lack scale and access and as such face a steeper ride than most, and they live day to day in the real world.  There can, and should, be more done to lessen the burdens placed upon small businesses.

Tue, 01/17/2012 - 10:44 | 2070899 rsnoble
rsnoble's picture

Meanwhile futures are pumped.  Or they were a few seconds ago anyhow lol.

I'm still trying to figure out what a "loan loss reserve" is. Only a bank could have something called that. 

Sometimes I get the feeling the NWO is being put together too hastily because people have woke up finally and despite one screwup after another they keep moving forward and it will end in total disaster.

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