$C U Next Tuesday Still Up to the Same Old Tricks

Oh Citigroup, what are we going to do with you? Shouldn't you have died already?

Profits? Losses? Well what do you call it when a bank owned mostly by the government gets a $2 billion infusion under the guise of "keeping homeowners in their homes"? A bailout by any other name...


Citigroup Inc. set aside a lot less money in provisions to cover loan losses during the third quarter. The move helped boost quarterly earnings, but it also unnerved investors.

Citi (C) said its net loan loss reserve build was $802 million in the latest period, down from $3.9 billion in the prior quarter.

However, net credit losses remained elevated at $8 billion and non-accrual loans reached $32.68 billion at the end of September, up from $28.25 billion on June 30, the bank reported.

The smaller reserve build "distresses investors at this stage of the cycle," Stuart Plesser, a banking analyst at Standard & Poor's Equity Research, said in an interview.

"If non-performing loans were falling, everyone would be pretty excited, but there was a build up of non-performing loans," he added.

Citi's non-performing loans were boosted by roughly $2 billion from trial loan modifications under the government's Home Affordable Modification Program, or HAMP. [ft alphaville has a great HAMP piece if you're interested]

These modified loans will remain as non-performing loans until the borrower makes several payments under the new terms. The decision to either charge off or record the loan as a successful modification is made only at the conclusion of the trial period, Citi said.

That means non-performing loans may actually be lower. However, that depends on how well the modifications work, Plesser said. That won't be known until the first quarter of 2010 probably, he noted.

The Citi shenanigans continue (but they have the excuse that "everyone is doing it" to fall back on as usual):

Citigroup Inc., which has yet to repay $45 billion in federal assistance, has more lobbyists than any other company who registered to try to shape legislation regulating the financial industry, U.S. Senate records show.

The New York-based bank, 34 percent-owned by the U.S. government, is listed as a client by 46 of the 1,537 lobbyists who filed with Congress to work on President Barack Obama’s push for rules to limit financial risks and impose stricter consumer protections.

They join 44 advocates for the American Bankers Association, 41 for Prudential Financial Inc., and 29 for Goldman Sachs Group Inc. Altogether, lobbyists for companies, business organizations and financial industry groups outnumber, by 25 to 1, the 58 who registered to represent consumer groups, unions and other proponents of tougher regulations.

“We’re like Luke Skywalker and they’re like the empire,” said consumer lobbyist Ed Mierzwinski, referring to the “Star Wars” hero. Mierzwinski works for the Boston-based U.S. Public Interest Research Group.

Skeptical CPA loves ripping on Citigroup's "auditors". I use the term loosely:

If the Big 87654 did their jobs properly, financial industry conditions would never have reached the point they have. The Big 87654 would have told institutions like Citigroup, "You ain't got a clue what any of that stuff is worth no matter how much 'file stuffer' you have. We're disclaiming an opinion". I doubt KPMG has done a decent Citigroup audit in three decades!

Jonathan Weil gave the big bank "auditors" some "love" as well(Bloomberg):

Citigroup, which is audited by KPMG, estimated its loans had a fair value of $601.3 billion as of June 30, just 0.2 percent less than their carrying amount. By comparison, the fair-value shortfall was 7.3 percent at Bank of America Corp., 4.3 percent at Wells Fargo & Co., and 2.5 percent at JPMorgan Chase & Co. PwC audits Bank of America and JPMorgan, while KPMG audits Wells.

The banks all say their estimates were reasonable, of course. For a company that needed a government bailout, though, Citigroup’s loan values look amazingly solid, given the fair- value gaps at those other lenders.

Elsewhere, BB&T Corp., a PwC audit client based in Winston- Salem, North Carolina, said its loans were worth 1.5 percent more than their $94.3 billion carrying value as of June 30. Commerce Bancshares Inc., a KPMG client based in Kansas City, Missouri, said its loans’ fair value was 2.3 percent more than the $11.1 billion on its books.

BB&T and Commerce showed the highest such percentages among companies in the KBW Bank Index. Were those values legit? Beats me. All but seven of the 24 banks in the index said their loans’ fair values were less than what their balance sheets showed. My guess is some banks may be interpreting the Financial Accounting Standards Board’s rules differently than others.

So it isn't just Citigroup that has some explaining to do, it's just that since it's essentially an arm of the government at this point for running their advanced money laundering operations and forcing Americans to stay in homes they can't afford it's a little more obvious what they are up to. If everyone is bending the rules and no one is forcing them to knock off the monkey business, what's to stop them?

Citi knows it has a credit line at the Treasury, as long as it has that it isn't going to change any time soon.

Has KPMG gotten this memo?

Citi is in an abusive relationship with its auditors who obviously want to enable their behavior instead of addressing the issue. Break free, Citi, time to clean up your life and move on. I'm sure Dr Drew would be available for an intervention, let's kick those toxic assets once and for all.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.