Last week’s earnings report sent shares of Citigroup up 3%, but the rally was short-lived. And rightly so.
The seemingly impressive numbers, at a closer glance, were tempered by an unimpressive reality.
Net income rose 24% in the second quarter, but that was as loan loss provisions declined (those loan loss reserves comprised two-thirds of profits reported, according to MarketWatch). And the problem is that’s a source that will evaporate.
Revenue rose 5% over the first quarter…but on an annual basis revenue fell 7%. And expenses rose 7%, year-on-year.
And at Citicorp (the division Citigroup is working to grow), revenue fell (though moderately at less than 1%).
But we don’t need an earnings report to know that Citigroup is not a buy. The stock is down 19% year-to-date, and is a long-term sell. And while shares were somewhat overpunished last week as the market reacted to the details of the earnings report, I would not consider that a buying opportunity.