Infinite Enigma, that describes Citigroup’s (NYSE:C) earnings made in Q1 09, Citi was able to take a $2.5 billion gain on a rule that lets it record any declines in the market value of its debt as an unrealized gain, excuse me, how does this work?  What?

The Deal.com said it best following today’s puzzling call:

Another important item in the press release is the accounting rules that Citi adopted, which Dealscape pointed out might’ve helped Citigroup:

“Citi adopted FASB’s recent rule changes regarding fair valuation (FAS 157) and other than temporary impairments (FAS 115). The adoption of the changes to FAS 157 had no impact on Citi’s financial results. The adoption of the changes to FAS 115 resulted in approximately $631 million pre-tax of lower impairment charges recorded in revenue in the current quarter. Additionally, the cumulative effect of the changes to FAS 115, which did not impact revenues, led to a $413 million after-tax increase in retained earnings and an offset in other comprehensive income on the balance sheet.”

In fact these accounting rules did help Citigroup. As Blogging Stocks points out:

“I could not believe my eyes when I read it but it turns out that Citi was able to take a $2.5 billion gain on a rule that lets it record any declines in the market value of its debt as an unrealized gain. The rule, which Citi adopted in 2007, reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit. But Citi didn’t do that — this has to be some kind of an error...And there should be a rule that forces Citi to take a loss for a decline in the market value of its assets too. But thanks to FAS 157-e, it can record any gain it wants on the value of its toxic waste — and I would not be surprised if Citi did just that in the first quarter.

Ned Kelly was also questioned by an analyst about the assets transferred from mark-to-market Kelly said that the bank moved $29 billion, and wrote up $540 million on the value. - Maria Woehr

The Smoke and Mirrors earnings call was a win for Citigroup, the company beat analysts expectations as reported net income for the first quarter of 2009 hit $1.6 billion resulting in a loss per share of $0.18 or $966 million; well below the $5.19 billion loss a year earlier. Analysts had been predicting a loss of 32 cents. Citigroup reported revenues of $24.8 billion.

Fellow Masters, investing and buying shares today in Citigroup is worse than buying shares in Crocs (NASDAQ:CROX) or Medical Marijuana, Inc. (OTC:CVIV), at least you can somewhat understand their financials and their business, selling crappy shoes and joints make more sense then the mess that is described above.

Happy Friday.

SOURCE: http://www.thedeal.com/dealscape/2009/04/citigroup_earnings.php