Pandit Says Citigroup Having Best Quarter Since 2007 (Update2)

March 10 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Citigroup has logged five quarters of losses totaling more than $37.5 billion since it posted a $2.1 billion profit in the third quarter of 2007. Once the world’s biggest bank by market value, it fell below $1 in New York trading last week for the first time as investors lost confidence that the shares can recover after losses and a government rescue.

“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said.

Shares Climb

Citigroup gained 28 cents to $1.33 in composite trading on the New York Stock Exchange at 9:35 a.m. The stock tumbled 95 percent in the past year, cutting the bank’s market value to about $5.8 billion. The bank is the smallest company and the worst-performing stock in the 30-member Dow Jones Industrial Average.

Shares of New York-based JPMorgan Chase & Co. gained 13 percent to $17.96, and Charlotte, North Carolina-based Bank of America Corp. rose 19 percent to $4.48.

Pandit’s upbeat remarks follow similar comments from Bank of America CEO Kenneth Lewis, who said last month that January results were “encouraging.” Morgan Stanley Chief Financial Officer Colm Kelleher said last month that the firm had a “good start” in January. Goldman Sachs Group Inc. is showing strong trading profits in 2009, Sandler O’Neill & Partners LLP analyst Jeffrey Harte wrote in a note last month after meeting with top Goldman executives.

“From a trading standpoint I think this is going to be a very good quarter for a number of companies, including Morgan Stanley, Goldman Sachs, JPMorgan and Citigroup, because the environment has changed dramatically,” said Richard Bove, an analyst at Rochdale Securities in Lutz, Florida. “The number of competitors has shrunk and the size of the business has increased, plus prices have gone up.”

Government Stake

The government’s plan to exchange its preferred stock for common shares will make Citigroup the strongest U.S. bank measured by tangible common equity, Pandit said in the memo. The transaction will also make the U.S. Citigroup’s biggest shareholder, with a 36 percent stake.

Regulators are examining ways to further stabilize Citigroup if needed, the Wall Street Journal reported today, citing people it didn’t identify. Federal officials called the steps “contingency planning” and aren’t expecting a sudden turn for the worse, the Journal said.

Citigroup’s deposits are “relatively stable,” Pandit said in his memo to employees. The bank has also conducted its own stress tests, using assumptions more pessimistic that the Federal Reserve’s, he said, adding that the bank is “confident” about its capital strength. Expenses totaled $8.1 billion in the year through February, less than Citigroup’s target, Pandit said.

Citigroup is expected to post a loss of 32 cents for the quarter, the average estimate of 11 analysts in a Bloomberg survey. Bove said Citigroup may turn a profit.

“It’s quite possible that they could have a positive result,” Bove said. “If they show a profit and if Bank of America shows a profit, it will be a shock to the people who have been selling these stocks so aggressively.”