Updated from 12:18 p.m. EDT


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shares surged almost 40% on Tuesday, after CEO Vikram Pandit said the company has been "profitable" through the first two months of the year, but some analysts are not buying into the optimism.

Pandit, in his latest effort to assuage concerns regarding the company's stock price, which traded under $1 a share last week, said in an internal memo distributed Monday evening the company is having the "best quarter-to-date" since the third quarter of 2007. The company said that based on 2008 metrics, the first quarter's profit is $8.3 billion before taxes and provisions.

Citi shares closed at its day's high of $1.45 on the news, but Larry Tabb, the CEO and managing partner of consulting firm Tabb Group, questioned Pandit's rosy view.

"The best way to really provide credibility is with transparency," Tabb says. "The problem has been

that Citi and some of these other organizations haven't really been forthright with the data," instead forcing investors to take more of a "trust me" attitude regarding toxic assets exposure.

For the first two months of the year, Citi's revenue, excluding marks, totaled $19 billion compared to $21 billion for the fourth quarter. In addition, the firm's deposits remain stable, its securities and banking businesses are performing well, while the company continues to provide credit to consumers and corporate customers, Pandit said in his memo.

As of the end of 2008, Citi had reduced its risky assets by roughly half to $112 billion from the year earlier period. Approximately $36 billion were subject to mark-to-market accounting, Citi said.

"Despite the steps we've taken to strengthen our capital base, I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position," Pandit said. "I don't believe it reflects the strengths of Citi; our newly strengthened capital base, our unique global franchise and most importantly, the quality of our people. These are unprecedented times in the markets, but over time, the markets will recognize the many strengths of Citi."

Last month, the company announced that it would enter into an agreement with the U.S. Treasury to convert its preferred shares into common shares in order to build the company's tangible common equity. The agreement is expected to increase Citi's tangible common equity ratio to as much as $81 billion from $29.7 billion at the end of the fourth quarter.

Jeff Harte, an analyst at Sandler O'Neill & Partners, expected the firm to be profitable, excluding loan loss provisions and further asset writedowns, but "we did not anticipate a bottom-line profit," he writes in a note.

"Our estimates remain unchanged, but for the first time in a long time our outlook may have an upward bias," Harte writes. The analyst predicts Citi would record a loss of 36 cents a share in the first quarter and a loss of 75 cents for the full year.

Citi, along with

Bank of America

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, has already received two capital injections from the government totaling $45 billion. The government also ring-fenced roughly $300 billion of assets.

Of the issues investors are concerned with, the memo highlighted that Citi expects to realize a majority of its net deferred tax assets, "even if near-term conditions deteriorate significantly."

Citi has also conducted its own so-called stress test using assumptions that were more pessimistic than the

Federal Reserve's

parameters. The Smith Barney joint venture with

Morgan Stanley

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and conversion of mandatory convertibles is expected to add another $14 billion to tangible common equity over time.

"We are confident about our capital strength," Pandit said.

Tabb says Pandit should focus on the progression of the initiatives already outlined, such as finalizing the Citi's good bank/bad bank structure and getting the firm's toxic assets off the balance sheet. But he should also move forward to sell assets such as Banamex and Nikko Cordial in order to raise capital, he says.

The longer Pandit procrastinates on selling assets, the more he will find himself attracting fire sale prices for solid businesses, Tabb says.

On the other hand, "I am not sure he has much to lose," Tabb says, referring to the stock's dismal price, the dilution of investors through two government capital infusions and more recently the Treasury's decision to convert a portion of its preferred stake into common shares.

"He can take his time and do what he wants," especially since there is a dearth of willing and appropriate executives available to replace


, Tabb says. "It might be in the best interest for them to do nothing" and wait for the economy to shake out.

But CreditSights analysts point out in a note published last week that the question remains as to whether "the current round of exchange offers are enough to right size the company's tangible common equity ratio as well as calm down market jitters."

"We sense that 2009 will remain a difficult year for the company," the analysts say in a note in which they assessed Citi's annual 10-K filing. "Citi is exposed to weakening credit quality, primarily in its domestic consumer exposures but could face much higher losses in international consumer and commercial lending."

On a conservative level, which CreditSights noted was similar to the current market expectations and possibly within the parameters set by the Treasury for stress testing, could incur additional future provisions and/or markdowns of $55.5 billion, the analysts estimated.

"As a result if the company were to frontload the majority of its marks, it may not be profitable in 2009," the note says. 'If market conditions deteriorate further, Citi's results would likely suffer as well."

In a "severe case," provisions and/or markdowns at Citi could total more than $100 billion, they say.