Whether you’re in a personal relationship or a business relationship, no one likes mixed signals. But that’s exactly what Citigroup Inc. (NYSE:C) is sending to its investors regarding plans for handling cash reserves set aside for the bank’s troubled mortgages.
Bad banks for bad mortgages
Reuters is reporting that John Gerspach, Citigroup’s Chief Financial Officer, told investors at a conference this past Tuesday that the bank would begin releasing these reserve funds “sooner rather than later.” The bad mortgages, a leftover from the financial crisis, were spun off from Citigroup into another entity called Citi Holdings, which lost $3.7 billion last year.
But not even one month ago, Gerspach told investors on the bank’s fourth-quarter earnings call that Citigroup was hesitant to release these reserves until the country had more completely resolved the fiscal cliff — that the way it had been settled was a case of “kicking the can down the road.”
If you build it, they will come
But since nothing has changed from a political perspective regarding the fiscal cliff in the past month, why the sudden change of heart regarding Citigroup’s cash reserves? Has something else of significance changed? Or is Gerspach just trying to make investors hopeful and happy, with no reality-based reason for doing so?
Gerspach did hint that perhaps by settling ongoing claims with Fannie Mae and Freddie Mac, Citi Holdings might be able to break even sooner rather than later, but he gave no specific indication how or whether this might happen. Bank of America Corp (NYSE:BAC) made a $10 billion-plus settlement with Fannie Mae just last month, and many of that bank’s investors are hopeful that this might exorcise the last crisis-related demons B of A has to deal with.
So maybe Citigroup has some similar deal in the works, and this is a roundabout way of leaking that info to investors. The bank’s stock did finish the day 2.78% higher yesterday, so if boosting investor confidence and share price was the plan behind Gerspach’s comments, it worked.