Monday, October 15, 2007
The Street is Disappointed In The Citi
The bottom line is that LBO's blew up, their mortgage-related stuff blew up, their banking business is pretty flat domestically, and the majority of the growth is international. But stuff like this is alarming:
Global consumer revenues increased 14%, driven by international consumer up 35%, which included a $729 million pre-tax gain on the sale of Redecard shares. Excluding the gain, international consumer revenues increased 21%, reflecting deposit and loan growth of 18% and 29%, respectively, and higher investment sales, up 26%.There seem to be more structural problems here than just the credit "turmoil". That did cost them a pretty penny, but that's recoverable. Unless I'm dreaming, they increased loan growth by 29% and increased their loan loss reserves by > 700%? Someone, slap me and wake me up! I guess one couldn't argue that it was unjustified, given their credit losses for the period. Nonetheless, the pattern here is rather disturbing. Are those EazyPay loans in Indonesia paying back? Is it "a peso down and a peso when you catch me" in Mexico?
In international consumer, higher credit costs reflected an increase in net credit losses of $460 million and a net charge of $717 million to increase loan loss reserves. The $717 million net charge compares to a net charge of $101 million in the prior-year period. The increase in credit costs primarily reflected the impact of recent acquisitions, portfolio growth, and a change in estimate of loan losses.
Excluding the Redecard sale, net income on international cards declined 38%, although net revenues grew 40%. International consumer finance was disappointing, and there is a special note about Japan. (See more on Japan here.) International retail banking net income declined 21%, but US retail distribution income declined 47%.
I knew it would be bad, but this is a really distasteful earnings report which should cause everyone to sit down and think a little more about the decoupling theory.
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