Media Pave Over Citi's Flaws

Matter can change from ice to water to steam with just a little bit of heat. Story lines can change just as quickly, so brace for what's to come with Citigroup (C - Cramer's Take - Stockpickr).

As I mentioned Friday, expectations for Citigroup's earnings varied so widely that using them as a measuring stick in the traditional sense, as many did, was pure folly.

Nevertheless, Citigroup did underperform. That's even if its latest write-offs provided some relief. Worse, many traders and writers took it on faith that this should be the last write-off, despite no evidence and a nettlesome quote from the company's chief financial officer about its consumer loan division. What did the CFO say? That losses just might "extend beyond where we've seen historic levels go. We are in uncharted territory."

They Just Don't Get Citi!

Worse still, even as parts of the far-flung and naturally unmanageable financial supermarket seemed to be folding in on others, Citigroup's rookie chief executive officer, Vikram Pandit, said he had been dealt a great hand, which showed little grasp of reality, and spoke out in favor of the concept of the financial supermarket, which showed less.

And yet look at most of the media's coverage of Citi and tell me the company's luck isn't about to change. CNBC declared an end to Citi's write-offs and also praised the company for its transparency. In one instance of this transparency, Citi's chief financial officer seemed to hint that more write-offs of lame loans were to come. "Banks Are Coming Clean, And Investors Love It," sings the headline, followed by:

"At least to the casual observer, Citigroup posted earnings Friday that weren't just bad, they were horrendous: A $5.1 billion loss, some $16 billion in writedowns from bad loans, and layoffs to the tune of 9,000 workers. But in throwing in the kitchen sink -- and everything else laying around the house -- Citigroup saw its shares soar 7 percent, taking the rest of the stock market along with it. Call it the 'T' word: Transparency."

Fortune also was optimistic, declaring in its headline a diminished "fear factor" at the company, and adding: "Citi's rally is the latest sign that shoulders are easing a bit in the financial sector."

And this effort from Barron's was so celebratory, I thought at first it was sarcastic.

Topped with the exuberant headline "Happy Days Are Here Again -- HOORAH!" it goes on to say: "Citigroup only lost $5.1 billion in the first quarter and credit market write-downs were only about $12 billion."

But, uh, this wasn't sarcasm at work. The column had suggested buying Citigroup puts, betting that the stock would decline. In light of these earnings, they were revising that strategy.

For balance, Barron's also ran this article, effectively an advertorial for bank recovery. If you don't think the headline -- "The Credit Crisis Shows Signs of Easing" -- was taken on faith, then look at the lead: "If something can't go on forever, it won't,' the late economist Herbert Stein famously said."

Um, OK. How about the hint of more write-offs? The curious statements by Pandit? He's firing people, so for Reuters I guess it's a matter of never mind. He gets a pass for everything else: "Investors nevertheless took comfort that the bank and its new chief executive, Vikram Pandit, are taking steps to get past credit problems, drive down expenses, and restore luster to a stock down by about half over the last year." The writers' first quote introduces the concept of catharsis. "'It's a cathartic quarter,' said Arthur Hogan, chief market analyst at Jefferies & Co in Boston."

What will give true catharsis is seeing a shift to more realistic coverage of Citigroup. And I think we'll get there. As a famous economist quoted by Barron's once said: "If something can't go on forever, it won't."