Citi’s memo: Can you believe it?
Today's Financial News - Posted March 10, 2009
Emotions still rule the market. The equities market is soaring today thanks to one CEO’s “memo” that promises this whole financial mess is overdone. Why should we believe him now?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): If your portfolio is filled with green today, you have just one person to thank. Vikram Pandit, the same Citigroup (NYSE:C) CEO that helped bring the Dow to 6,500, gave the equities market a boost today when he told his staff he is confident of his company’s capital strength.
In an open letter to his employees that was obviously designed to find its way to Wall Street, Pandit tells anybody that will listen he believes the company’s pummeled share price was due to “broad-based misperceptions about our company and its financial position.”
He went on to discuss the company’s financial success so far this year. Thanks to revenues of $19 billion in January and February, the company has recorded an operating profit of $8.3 billion so far this year.
Of course, Pandit warns, that figure is before taxes and any special charges or write-downs. He also says March’s volatility could take its toll on the figures.
In other words, those are merely accounting figures. The real numbers will be nowhere close when we close this quarter’s books.
Why should we believe them now?
Pandit may be shooting himself in the foot with this memo. He is setting the earnings bar pretty high and has proven the company’s business model still works. If his next quarterly earnings report does not live up to today’s expectations, Pandit will be in the hot seat with no excuses.
Investors should not be sucked into today’s news. Pandit is desperate and utterly embarrassed his company’s shares fell into penny-stock territory last week. Even more devastating to his corporate ego, Citigroup was forced to let Uncle Sam take a 36% share of the company along with some $45 billion in taxpayer funding.
Wall Street’s reaction to Citi’s pseudo-memo proves emotions rule the markets. Until we get back to fundamentals and eliminate much of headline risk that has been controlling the trading action, investors must be very careful.
This is a market ripe with trading opportunities, but you had better have a strong stomach. Unless the nation’s banks can back up these “memos” with proof of strong fundamentals, market volatility will remain extremely high.
The bulls may be roaring today, but the bears are nowhere close to hibernating.
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