Transcripts

Citigroup & Caterpillar Calm The Volatile Markets

SUSIE GHARIB: More big losses today from Citigroup. The banking giant is writing off another $14 billion related to bad mortgages and leveraged loans. Citi also plans to cut 9,000 jobs. The news came as Citi reported a first quarter loss of $1.02 a share. That was $0.07 worse than analysts had expected. But despite the massive red ink, Citi shares rallied 4.5 percent and lifted the overall market. The Dow jumped 228 points and the NASDAQ rose 61. Scott Gurvey has more on why Citi's bad news was good news to Wall Street.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Analysts called the Citigroup results a mixed bag. For the second quarter running, the company posted a huge loss and took big write-downs. But Citi's stock rallied despite the news. Michael Levine of Oppenheimer says traders were relieved because the write-downs were much lower than expected, even though earnings per share were lower.

MICHAEL LEVINE, PORTFOLIO MANAGER, OPPENHEIMER FUNDS: I don't think anyone was looking at this quarter as far as earnings per share, the earnings power of the company. I don't think anyone is really looking at the next quarter or two. I think the big question is what can Citigroup earn in 2009? They're selling some assets. They're shrinking the balance sheet, I think the key thing is what is the earnings power of the company.

GURVEY: Citi also kept its dividend intact when many were expecting a cut. The big write-offs were for CDOs, auction rate securities and other large risk pools. Getting those off the books helps analysts forecast what's ahead for Citi's finances. But Jason Polun of T. Rowe Price says that does not mean Citi is out of the woods.

JASON POLUN, PORTFOLIO MANAGER, T. ROWE PRICE: We're actually getting more visibility into some of these legacy risk assets where they're taking these big charges. So incrementally after this quarter, we feel better about that. But in terms of the macro economic outlook, there's actually somewhat less visibility in terms of just old fashioned credit risk.

GURVEY: Those are the risks all financial institutions face during a slowdown. It is difficult to forecast the impact as credit starved consumers cut back on spending in light of falling home values and increased costs for necessities like food and energy. Analysts expect further write-downs for credit card and home equity debt for Citi and other financial institutions. But in terms of the stock, some observers think Citi and other financials may be close to a bottom. Michael Levine of Oppenheimer says Citi might be a buy for an investor with a long-term outlook.

LEVINE: I think if you look out 12 to 24 months, Citi still has a great global franchise and I think, you actually saw it today, the net interest margin has begun to expand with the interest rate cuts that we've seen so I think if you have a long enough outlook, you can certainly begin to buy today.

GURVEY: Citigroup holds its annual investors' day on May 9. It is the first since CEO Vikram Pandit took command. He is expected to outline his long run vision for the company at that meeting. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.