Earlier today Citi reported earnings that missed expectations of $1.02 on an unadjusted basis ($0.95) but beat adjusted ($1.11). Same with revenue. And while one can go through the bank's 10-Q and earnings presentation, there are just two charts worth pointing out which show the same trend exhibited by JPM last week: loan loss reserve release was $1.2 billion or 40% of the $2.931 billion in after tax net income. Which is to be expected: the traditional primary driver of "earnings" continues to be an accounting fudge. Where things get dicier is when considering that in Q1 2012 mortgage credit trends are not exactly good, because just like in the case of JPM, net credit losses rose for the first time in, well, years. So: loan loss reserves are released even as the inflection point in credit losses is reached. Brilliant.
Loan Loss Reserves:
[2]
And Credit Trends:
[3]
Full presentation: