Citigroup’s Flush

A plan seems to be emerging from Citigroup (C). If nothing else, the credit situation was not a worse as people feared.

Citigroup reported a net loss of $5.1 billion, or $1.02 a share, for Q1 with more than $10 billion of write-downs. Revenue fell 48% to $13.22 billion. They took $6 billion of pretax write-downs and credit costs on sub-prime loans. The firm also announced write-downs of $3.1 billion on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1 billion increase in credit costs in its global consumer business.

Citi also said they have already sold $4 billion in leveraged loans in April. CFO Gary Crittendon said there will be no “transformational” assets sales (they will sell some, just nothing big) in 2008, no more dividend cuts, and no more equity raising. About 9,000 additional jobs, on top of the 4,000 already announced are going to be cut.

In short, things seem to have bottomed. This is not to say it is a shot up from here. My guess is thing languish for a while until there is some trust back in the financials. The past month has seem an avalanche of bad news out there and as a group the financials have taken the hit and equity prices have remained stable.

Now we look to next quarter for more stabilization and perhaps improvement. If there is improvement, it will be small. Just no further billion dollar write down would be huge at this point. Investors seem to have much more clarity as to both what is happening inside the bank and in the environment it operates in.

For long term folks, it would seem a good time to get in.
Disclosure (“none” means no position):Long C

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