Citigroup ( C) shares were rallying 11% Thursday, as investors were heartened by a potentially beneficial accounting change and a bidding war emerged over the company's Japanese brokerage unit. Bank stocks including Citi, JPMorgan Chase ( JPM), Bank of America ( BAC) were on the rise, as the Financial Accounting Standards Board voted to ease rules that govern mark-to-market accounting, which many have blamed for exacerbating the financial crisis over the last 20 months. The current mark-to-market accounting rules say that banks must mark their illiquid assets at "fair value," regardless of whether they intend to sell the assets in the near term or not. The FASB agreed that the objective of mark-to-market accounting still involves what would be received in an orderly transaction in a currently inactive market. However, the board said that an "orderly" transaction does not include a forced liquidation or distressed sale, which allow assets to be valued differently. Citi's stock also may have been benefitting from reports of strong interest in its brokerage subsidiary, Nikko Cordial. Japan's three biggest banks, including Mitsubishi UFJ Financial ( MTU), Sumitomo Mitsui Financial and Mizuho Financial ( MFG) were said to be fighting over the brokerage firm, the Wall Street Journal reports. The banks apparently are looking to expand their retail brokerage operations -- an important part of the growth strategy -- as the global credit crisis continues. Citi has been looking for ways to cut expenses and add to capital as it shaves non-core businesses from its lineup. The sale of Nikko follows the joint venture the company recently created between Morgan Stanley ( MS) and Smith Barney, Citi's profitable U.S. brokerage force, and the sale of its German retail banking operations.
CEO Vikram Pandit has been under intense pressure to get the company profitable again, especially after taking some $45 billion in government bailout funds to solidify its capital levels against increasing losses from securities writedowns and troubled loans. Recently, the government agreed to convert a portion of its preferred stake in Citi to common stock to boost the company's tangible capital levels. Citi shares rallied as high as $2.99, but more recently were up 8.2% to $2.90.