White, Straight, Republican Male (How else can I piss you off today?)

Citi has been among the hardest hit by the credit crisis and ongoing recession. It has received $45 billion in funds from the government and guarantees to protect against losses on more than $300 billion in risky assets. The government is in the process of acquiring a 34 percent stake in the bank as part of a broader debt exchange program.

The exchange program will provide Citi a better mix of capital to withstand additional loan losses and further weakening in the economy. By turning preferred shares into common stock, Citi also no longer has to pay out dividends on the preferred shares, thus helping improve its cash flow.

Like other large retail banks, such as Bank of America, Citi is still facing mounting loan losses as the recession continues. Citi set aside $12.68 billion to cover loan losses during the second quarter, compared with $7.1 billion during the year-ago period.]

Will P here.
1.$6.7B after tax gain by selling Smith Barney.
Ok. even with ALL the free money loans and back stops and guarantees, swap of preferred for common equity, cash injections C only posts a $3B second quarter profit. This is pathetic.

2.  "the increasing values of some of its riskier assets that had plunged during the.."
 Well yeah! thanks to vitually NO accounting standards, C prices these assets to whatever level they want. I am not being facetious. This is fact.

3. "Citi set aside $12.68 billion to cover loan losses during the second quarter, compared with $7.1 billion during the year-ago period."
For Christs sake, why are they allowed to keep the doors open?

JAY PEE MORGAN:
        Writing about Citi always puts me in a bad mood so I will turn to economic disconnect for Jamie "Rainman" Dimon.

(excerpt from http://economicdisconnect.blogspot.com/2009/07/earnings-vs-earnings-ex-government-help.html
[Today JP Morgan announced earnings that blew away estimates. JPM posted 28 cents a share vs, estimates of 4-6 cents. That was a huge 5-7 times trouncing of the Wall Street estimates. Or was it? That depends on when you ask.

from Zacks we see that (scroll down to "Magnitude - Consensus Estimate Trend"):
-90 days ago estimates for JPM this quarter averaged 34 cents. Now I would say a ton can happen in 90 days, so we will leave that one be.
-60 days ago average estimate was 30 cents
-30 days ago average estimate was 25 cents
-7 days ago average estimate was 11 cents

That is quite the takedown of estimates. Just what did polled analysts see that pointed to a 11 cent quarter when JPM had a 28 cent quarter? Strange indeed.]

Will P here. My friends I can't stand how slimy it makes me feel to write about these  institutions so I will end it with the Kings of Crony Capitalism, Goldman Sachs. Ya know, the bank that has $0 in deposits and a Value at Risk exemption that was granted WITH NO EXPLANATION.

excerpt from http://economicdisconnect.blogspot.com/2009/07/earnings-vs-earnings-ex-government-help.html

 [The article was sharp right from the beginning:

This week, Wall Street superpower Goldman Sachs announced second quarter net profits of $3.44 billion, far exceeding expectations. Earnings per share also rose, to $4.93 from $4.58 a year ago. This is a promising sign that the battered financial industry is on the mend, but it should be noted that Goldman didn’t do it alone. In fact, at least some of these profits were made possible by guarantees, low-cost loans and other assistance from the federal government.

Fair analysis. GS did great, but with a bit of help from their friends. As examples of that help the author cites:
-AIG funnel program for full payouts to GS
-TGLP access which allowed capital raising at basement prices (called "an infinite subsidy whose value could not be calculated" (wow that's pretty big!)
-Full FED discount window access which precludes any panic about liquidity as it is practically unlimited

The author even covers the ballooning "Value at Risk" (VaR) profile for GS:

Altogether, this government support essentially enabled Goldman to return to its traditional model of business: accepting risk in order to magnify profits. Specifically, Goldman boosted its “value-at-risk”—the estimated value of its trading activities on a given day under a worst-case scenario—to $245 million this past quarter from $182 million in the same quarter last year.

In summation, the author offers this:

Indeed, the profits announced this week by Goldman Sachs are an encouraging sign that the financial markets are starting to return to normal. But they are by no means evidence of a full-fledged economic recovery. In fact, without the support of the aforementioned government programs, Goldman’s profits would have been incalculably lower.

I remember this morning when I read that last paragraph thinking "What!??"

So without all this help from the government, GS earnings would have been "incalculably lower" but somehow, some way this is "an encouraging sign that the financial markets are starting to return to normal"? Color me puzzled on that one.

I remember when Barry Ritholtz coined the term "Inflation, Ex-Inflation" when inflation was running wild in the 2002-2006 time period (I know, impossible to believe deflationistas!) but all measures of it were lost due to all kinds of funny number play.

Tonight I coin (mint?) "Earnings, Earnings Ex-Government Help".

Subtract all the AIG payouts, artificial cheap money, explicit government guarantee of liquidity, and loss of all competition and then we shall see where the banking giants stack up. What would GS's earnings have been in a free system? We can never know. I propose all earnings statements from last October until all the aid programs end must be marked with an asterisk (*) as they have no bearing on any historical measures and do not apply directly.]