Citi Earnings Beat Spurs Optimism (Update2)

"Citigroup reported results that should help ease concerns of an imminent capital raise, that show run-rate annual earnings of $2 [a share] and credit quality that is not so different than peers," Mayo writes in a Friday note. "The lingering issue is the degree of additional possible future write downs on remaining high risk exposures, a still negative trend in credit, and how much of this quarter's revenues are one-time. Nevertheless, concerns of an imminent capital shortfall have abated."

Despite its losses, Citi's earnings beat joins JPMorgan Chase's(JPM Quote) on Thursday and Wells Fargo's(WFC Quote) on Wednesday. Those results helped spur a market rally this week, but Merrill Lynch(MER Quote) disappointed investors with results Thursday after the bell.

"Citi did a little better than expected, thanks to a strong core outcome in fixed income trading (same as JPMorgan) [Thursday]," writes David Trone, an analyst at Fox-Pitt, Kelton Cochran Caronia Waller. "We expect the stock to outperform today as the results were bad, [but] actually a little better than expected. Writedowns and credit issues were in line with our expectations and could have been far worse."

At least one activist investor remains unhappy with Citi's performance last quarter. In a letter sent Friday to Citi chairman Sir Win Bischoff, the American Federation of State, County and Municipal Employees (AFSCME) renewed calls for a split between Citi's consumer and securities businesses.

"Citigroup lost close to $15 billion in the six months ended March 31, and today Citigroup posted a second-quarter loss of $2.5 billion. How many more losses can our company as currently composed withstand?" AFSCME said in the letter. Through a public pension plan for its members, AFSCME owns roughly 3% of Citi shares.

A move to break up Citi's securities, investment banking and consumer businesses "would clarify Citigroup's financial position, would unlock value and would allow greater focus in each core area, rather than the unwieldy jumble that has jeopardized our company's financial position and led to the loss of so much shareholder value," the letter said.