Back in the black still not good enough

THIS should have been a day of celebration. Citigroup, the bank that teetered on the brink during the crisis, turned a $10.6bn (£6.6bn) profit in 2010 – its first profitable year since Vikram Pandit took the helm in December 2007. But in the event it just wasn’t good enough.

It missed expectations for profit quite spectacularly, posting fourth quarter per share profit of 4¢ against Wall Street expectations of 7¢. Citi blamed tightening credit spreads, which it said wiped some $1.1bn off fourth-quarter earnings.

Even taking these charges into account, Citi still underwhelmed at the top line, with revenues of $18.4bn against expectations of $20.4bn.

Until now, buying Citi shares at a discount to the bank’s tangible book was a clever value play, but now Pandit desperately needs to show he can build some earnings momentum.

There was a solitary bright spot, however, which bodes well for the rest of the sector: credit quality has massively improved. Non-performing assets were down 13 per cent, while the bank posted its fifth sequential decline in writedowns.

In truth, there is not much wrong with Pandit’s strategy. He is investing in the brand in emerging markets and waiting for significant earnings leverage from improving credit conditions. All he can do is build it, and hopefully it will come.