The headlines in the Wall Street Journal read "Citi's Profit Drops Less Than Expected; Revenue Down 11%."
The subheading is "Despite 27% drop in its bottom line, bank still beats analysts' estimates."
We got the same sort of story from the earnings from JPMorgan Chase.
And, Robin Wigglesworth in the Financial Times begins his article with a story from the comic strip Calvin & Hobbs where Calvin was asked "why he rejoiced at a mediocre test score, Calvin simply replied: 'I find my life easier the lower I keep everyone's expectations.'"
But, this is ridiculous!
Profits are down 27 percent, but this is still looked on positively because it beat the analysts' estimates.
If expectations are almost always beaten, why pay any attention to the analysts who get taken in by managements and build up expectations that are too low?
Basic banking was hurt because of the decline in net interest income from 2.22 percent in the first quarter of 2015 to 2.10 percent in the first quarter of 2016.
Trading revenue was down 13 percent, year over year, and investment banking revenue was down a whopping 27 percent.
Citi's provision for credit losses rose, year over year, from $1,915 million in the first quarter of 2015 to $2,045 million in the first quarter of 2016. The increase of $130 million was not that high relative to the other major commercial banks reporting this week.
Still, perhaps not as much was taken this quarter because of the declining revenues in other places.
We are going to have to see how this performance fits into the whole turnaround scheme that Citigroup is going through. Michael Corbet took over as CEO of Citi in October of 2012. By 2015 he had overseen an increase in the bank's ROE to 7.8 percent from the 4.1 percent earned by the bank in 2012.
Hopes were riding high that Mr. Corbet, in three years at the helm, was achieving some success in turning the institution around.
As a consequence, the first quarter really looks like a setback from the appearance that progress was being made in turning the organization around.
Personally, I still believe that Mr. Corbet has done a good job and is changing the business model of Citigroup in the right direction. I felt that moving the ROE above 10.0 percent in the next two or three years was not out of the question and would show that Mr. Corbet had made the right moves.
But, I could be wrong, of course. Mr. Corbet may come up short. The next two years or so should provide the answer to this as a turnaround in an institution as large as Citi should begin to take place by the third year of new leadership and continue to become more noticeable in the fourth and fifth years.
That is why I am so hard on Brian Moynihan, CEO of Bank of America. Mr. Moynihan is in his sixth year at the helm of this bank and he has produced very few positive results.
I find Citigroup an interesting situation, but there is still a lot of uncertainty about its future.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.