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Citigroup Posts Best Earnings Since 2007

The announcement marked the company’s first quarterly profit
since fall 2007 and offered new evidence that Washington’s massive rescue
efforts may be helping banks to revive earnings.

Last year, Citigroup posted a loss of $5.11 billion in the
same period.

In the first three months of this year, Citi’s revenue was
up 99 percent to $24.8 billion. But the company’s profits and then some were
paid out in special dividend payments to preferred shareholders, leaving a net
quarterly loss of 18 cents per share, which was less than the 34 cents a share
on revenue of $22.9 billion that had been predicted by analysts, according to

Citigroup has been the weakest of the large U.S. banks, but
CEO Vikram Pandit triggered a stock market rally last month after he said that
January and February had been profitable.

On Friday, Pandit said in a statement that he was
“pleased” with Citigroup’s performance.

“While we and the industry face challenges in the
coming quarters as we work through the weak economy, we will remain focused on
strengthening the Citi franchise,” he said.

The bank’s better-than-expected report comes after
surprisingly solid earnings from JPMorgan Chase & Co., Goldman Sachs Group
Inc., and Wells Fargo & Co. over the past few days. While recent results
from these healthier banks have brought some relief to investors, many have
been waiting to see how more troubled banks such as Citigroup have fared.

At the start of the year, many of the biggest U.S. banks
were on life support. Several are showing signs of recovery, aided by a
tentative improvement in some corners of the economy and business taken from stumbling

While that could signal that the banking industry might not
be as sick as many believed, investors are concerned that the strong trading
activity seen by banks in the first quarter was a one-time event as credit
markets begin to thaw. Even JPMorgan CEO Jamie Dimon acknowledged Thursday that
trading activity is unlikely to remain so robust.

“We are in the eye of the storm,” Gerard Cassidy,
a banking analyst at RBC Capital Markets told the New York Times. “The
worst is behind us for housing. For commercial real estate and corporate
lending, there is still a big dark cloud.”

The question is whether banks can find other ways to offset
loan losses, which nearly all economists and bankers agree will keep rising
throughout the year as the unemployment rate ticks higher. The global recession
is causing defaults in mortgages, credit cards and commercial real estate loans
— and Citigroup is heavily exposed to all of these.

In March, Citigroup stock hit an all-time low of 97 cents
per share. It has since quadrupled, but remains down 40 percent for 2009 and down
93 percent from its late 2006 peak.

Citigroup’s stock rose in premarket trading from its
Thursday close of $4.01, but was trading down 3.5 percent Friday morning at $3.87
a share. World stocks were on track for a sixth consecutive week of gains while
the dollar gained against major currencies, including the euro, which hit a
one-month low.

Since late 2007, Citigroup has gotten a new CEO, a new
chairman and a new structure that splits its traditional retail and investment
banking business from its consumer finance units, asset management, and risky
mortgage-related assets. It’s been downsizing by selling off businesses and
laying off a fifth of its employees. It has also received $45 billion in
government funding and a federal backstop on roughly $300 billion in assets.

With results of a new stress test for the nation’s 19
largest banks due to be unveiled on May 4, some banks are jostling to distance
themselves from recent dismal earnings reports by trying to free themselves
from their government lifelines. Earlier this week, Goldman Sachs raised $5
billion in anticipation of repaying the government’s investment. JPMorgan CEO
said Thursday that his company would pay back $25 billion as soon as regulators

“Goldman can give this money back because it has enough
money, it can raise money,” Wall Street Journal reporter Deborah Soloman
explained on the NewsHour Monday. “You know, they did a $5 billion equity
offering today. But without that government capital cushion there, they may not
provide the financing, the flow of credit, the things that are going to enable
people to get student loans, home loans, credit cards, mortgages, things that
basically the government is trying to jump-start with this program.”

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