Citi Earnings Beat Spurs Optimism (Update2)

Citi has reduced its overall assets by $257 billion or 11% to $2.1 trillion since the third quarter, according to Citi's CFO Gary Crittenden, in a conference call this morning.

But the financial titan, which has been rocked in every way by the credit crunch and housing downturn -- including the ouster of its CEO Charles Prince late last year over fumbles the company has made -- still has a ways to go before it can breathe a sigh of relief.

Citi still must deal with "disrupted" fixed-income markets, where "investors continue to be wary," Crittenden said on the call. It has significant exposure to monoline insurers such as MBIA(MBI Quote) and Ambac Financial(ABK Quote) and risky mortgages such as subprime and alt-A in its securities and banking arm.

"However, as you have seen, we are aggressively managing our exposures," the CFO said.

Adding to Citi's troubles is the winding down of its Japanese consumer finance arm, as well as credit costs in its consumer business, which are likely to rise the rest of this year. In addition, Citi's year-over-year expense comparison in the second half of the year will be "challenged" by the fact that compensation costs were so low last year because of the shaky markets as the credit crunch roiled, Crittenden said.

Still, analysts seemed fairly pleased with the results.

Deutsche Bank analyst Mike Mayo upgraded Citi's stock on Friday to hold from sell, while Moody's Investors Service affirmed its ratings on the financial titan's debt. Moody's rates Citi's senior debt Aa3, its lead banking subsidiary at B for financial strength and Aa1 for deposits. Still, Moody's has a negative outlook for the firm.