It was a pretty good day for the boys at 399 Park. Earnings-wise they pretty much hit one out of the park, blowing away street estimates for the second quarter. Yeah, at first glance there was a little of fiddle-faddle but there's always is on any bank report you can pick up. The performance was more impressive than that of everyone's darling, Wells Fargo, who clearly underperformed in their release last week. Wells is a domestic bank pure and simple; the closest thing to a "bank" as to those things to which we grew accustomed when Mom used to make the weekly contribution to the Christmas Club account, accepted with a smile and a promise of no return, but at least there was a few bucks at the end of the year for the Daisy BB gun that Santa would bring. There aren't many like that any more…at least not many that get into the front pages. Only about 8000 or so, but Citi is an entirely different beast; a global colossus and the nation's only truly international bank. It is, as it is warned, a hell of a tough organization to manage, unlike Wells which--in comparison only--is easy. So when they get it right as they did last quarter you simply have to take off you hat and say, "Well done."
Now don't get me wrong, they have a long, tough road ahead of them, in a tough global enviorment whilst living in some tough neighborhoods. Repeating like-performances on a regular basis will not be easy if at all possible. They need a lot of things such as--IMHO--a better board of directors and more and better mid to upper-tier managers. In my day Citi was the breeding ground for bank managers all over the world. If they lost someone, you never noticed. A bench probably the strongest in banking history. Not any more. One thing they don't need is the disgraceful and destructive attention they have been receiving from their primary regulator (about whom we have spoken) and the Department of Justice who, in agreeing to a $7 billion fine to be paid to the Feds and to State governments, Citi may…and I say MAY…have put their legal troubles in the rear mirror.
I say may because the ink was hardly dry on the agreement when the Attorney General Eric Holder stood up on his hind legs and blasted Citi for alleged criminal activities in the packaging and sale of mortgage securities which the $7 Billion settlement was supposed to cover and threatened criminal prosecution over the same. Good luck, but he refuses to let go probably because in the reporting of the agreement this morning he and his acolytes took a terrible blow in the papers which, as people begin to realize just what it was that was said, is going to come back and bite him…hard.
It was reported that the government was prepared to refuse the settlement agreement and had planned a major news conference to announce just how tough they were going to be when the capture of the the supposed Benghazi ring leader was announced. So much for air time and as a result they were forced to accept the agreement as negotiated.
And so, one can sit back and muse just what the hell was this about anyway, and the answer is fairly straight-forward. This was a political witch hunt organized by the Administration against the most demonized organizations in the history of the country. Oh, that is not to say that the financial institutions did not engage in ridiculous, stupid, self-serving and probably some illegal practices for which they should be justly punished. And I would not be the least bit disappointed to see a few guys serve time if illegality can be proven. But Holder could care less about doing justice; his actions have always been motivated by the agenda of The Leader to engage in class warfare for political gain. A decision on a seven billion dollar settlement based on the effectiveness of a press conference? I leave it to you to judge these actions.
Citigroup is very much at a pivotal point at this moment. The garbage that was part of their balance sheet for so long is pretty much gone to the extent that the repository for that garbage, CitiHoldings, actually made a profit last quarter. What else is there, one doesn't really know. The concern has always been about the ability to manage and once again, the loss in Mexico due to fraud was raised again today as an issue. Ok, not good, but let me suggest that from my experience, no matter how good are your controls, if the bad guys are out to get you, you will be got, especially if the have someone on the inside in the proper position. Not forever, but for a long enough time where a good deal of money can be lost. Anybody remember the salad oil scam a few decades back? That was in the good ol' U S of A not Mexico, yet remarkably similar. Mexico was in my mind an expensive embarrassment but not a major event.
One final point about this most interesting company. There are a lot of reputations out there at stake and a goodly majority of them had an intellectual short on the company. They don't like to be proven wrong so Citi had better get it right because at the first sign of a misstep the doubters will come down hard. This is going to be fun to watch over the next couple of years.
The other thing that was fun was the final yesterday. Congrats to both sides. The only sad thing is wondering what a match it would have been if Inestia had not missed the cripple early on. And congrats to Brazil. You probably shouldn't have put it on but is was a hell of a show.
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