Citigroup surprises Wall Street, but this time in a good way

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From Times staff writer Walter Hamilton:

Who would have expected Citigroup Inc. to ride to the rescue of the financial sector?

The banking giant reported a smaller-than-expected second-quarter loss this morning, relieving some of the pressure on financial issues that was expected the day after Merrill Lynch & Co. uncorked terrible results.

Citigroup Inc. lost $2.5 billion in the quarter (54 cents a share), wrote off $7.2 billion in mortgage-related debt and recorded an additional $7.2 billion in credit costs -- mostly also tied to the housing meltdown, as consumer loan losses mount.

But analysts had expected the New York-based company to lose about $3.7 billion, according to Bloomberg data, and to suffer a larger asset write-down.

Given that anything less than a catastrophe passes for good news these days in the financial industry, Citigroup’s shares are getting a bounce, for a third straight session. The stock was up $1.59, or almost 9%, to $19.56 about 10:30 a.m. PDT. After reaching a nearly 10-year low of $14.56 on Tuesday, the shares rebounded 13.1% on Wednesday and 9.1% on Thursday.

Short sellers -- traders who had borrowed Citi stock and sold it, betting the price would keep falling -- probably are helping to push it higher today as some of them close out their bets. The total of shorted shares of Citigroup reached 152 million as of June 30, up from 108 million just since mid-May.

The financial stock sector index of the Standard & Poor’s 500 initially fell early today after Merrill’s larger-than-expected quarterly loss, reported after the closing bell Thursday. But the index was up about 0.6% at 10:30 a.m. PDT after surging 19.6% in the two previous sessions.

‘All things considered, it was a decent quarter for Citigroup,’ William Tanona, an analyst at Goldman Sachs Group, wrote in a note to clients.

Still, Citigroup’s report underscored the heavy exposure that the mastodons of American finance continue to have to the subprime mortgage market. The company’s subprime assets were reduced from $29.1 billion in the first quarter but still totaled $22.5 billion as of June 30.

Citigroup was able to sell or otherwise dispose of $3.2 billion in subprime assets but got rid of the biggest chunk -- $3.5 billion -- by simply writing it off.

Analysts expect that to continue for the foreseeable future.

‘We still believe the company will face additional write-downs on these assets in coming quarters,’ Tanona wrote.