Why Citigroup Inc (C) Is Having a Better Week Than Expected

At the opening bell, Citigroup Inc (NYSE:C) was down 2.26% for the week, riding the general wave of market pessimism and some unwelcome news from the Friday previous. But two and a half hours into trading today, shares are down a mere 0.58% for the week, buoyed by welcome jobs news from the federal government that has sparked a powerful market rally.

This just in
The Labor Department reported this morning that the U.S. economy added 175,000 jobs in May, beating economists’ expectations. The overall rate of unemployment actually rose from 7.5% to 7.6%, but this is because of more people returning to the workforce. This is very welcome news indeed.

The unwelcome news is word that Citi is finding itself back in court, refighting a case it thought it won several years ago, one that could put it on the hook for $8.3 billion. The case involved Citi’s facilitation of the sale of EMI to British private equity firm Terra Firma. Terra Firma claims Citi lied about a competitive bid, which led to a gross overpayment by Terra Firma for the recording and music-publishing giant.

Then on Monday, American Banker broke the news that Citi had settled a suit with institutional investors over losses incurred during the housing boom relating to share purchases.

Foolish bottom line
If the Terra Firma case goes against Citigroup Inc (NYSE:C), and Citi finds itself on the hook for the entire $8.3 billion, the superbank won’t be made insolvent. But $8.3 billion is a lot of money, even for Citi. Unfortunately, there’s nothing much to do but wait until the outcome is decided. This could cause market unease, which could affect the performance of the stock.

As for the American Banker story, no payout amounts were disclosed. Will it be $1 million or $1 billion? Investors don’t know right now. This could also cause market unease and affect the performance of the stock.

But for today at least, the Labor Department’s good economic news seems to be overcoming any investor unease over Citi’s legal woes. All of the Big Four banks are solidly up right now (though less so for Bank of America Corp (NYSE:BAC) , as it’s in a legal fight far worse than Citi’s at the moment). And all three market indices are solidly up, too.