In the wake of the latest $11 billion write-off news at Citigroup (C): The big bank started backing off of its “we’ll see a return to a normal earnings environment in the fourth quarter” statement from October 1 on its October 15 earnings conference call.
As I wrote at the time, the hint was in the form of the fine print of CFO Gary Crittenden’s comments regarding mortgage delinquencies. “We have kind of a 30-day lag in getting the information from the industry,” he said. “We think we are running better than the industry. But having said that, there clearly was an uptick in the quarter and our expectation is that this is going to continue as we go into the fourth quarter.” He later added that the credit situation “may very well impact us as we go into the fourth quarter.”
That’s about as close to a window as any company will give, assuming investors were willing to look through it and acknowledge what they see. Hard not to do as Merrill (MER) got muddied, at which point common sense should have prevailed: Nobody knows how deep and wide this thing will go.
However, as remarkable as it may appear, until today there were still those unwilling to believe that the smartest guys in the room could be so dumb. (And even now I’m sure we’ll hear some people saying that it’s not really that bad and that it can’t possibly get any worse.) P.T. Barnum would be proud. (For a related thought on this, please see my earlier post on greater fools.)