Mike Mayo: Citi Not To Be Trusted

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As mentioned last week, analyst Mike Mayo has been going around telling clients and whoever else will listen that the bank is inflating its profits and needs to a write down $50 billion of deferred-tax assets. For the offense, Citi has, according to Charlie Gasparino, frozen Mayo out. No one-on-ones in Pandit's office, no phone interviews, and he's even blocked from Uncle Vik on IM, which has got to chap some serious hide. On Friday, fellow analyst Dick Bové inserted himself into the situation, coming out and claiming Mayo be talking shit, and that Citi is "not cooking the books." Today, Mayo went on.

"We believe that Citigroup’s financial targets can encourage short-term excesses over long-term prudence," Mayo wrote in a note to clients titled "A Matter of Trust." Mayo, an analyst at the securities firm CLSA, added: "Citi has an aggressive financial target of 5% asset growth when so much of its past problems stem from excessive asset growth."

"Citi's deferred tax asset -- $50 billion -- is more than twice as large as any other US corporation and the largest as a percentage of tangible equity among large banks (39%), but it has not recognized any write-down (or related adjustment) even though most other companies in a similar position (3 years of cumulative losses) have taken write-downs," Mayo wrote. "This position is further supported by news that the SEC has investigated these issues. In short, the company claims no DTA adjustment is warranted based on its projected earnings over the next couple of decades. More importantly, accounting precedents seem to us to warrant that a write-down is necessary. The stakes are raised since the lack of a write-down could lead to investor lawsuits later on."

Chaz Gasparino reports that Citi has reiterated that everything is cool and that it will meet with Mayo "in due course," though if they think five minutes in the conference room while VP files his nails and looks bored is going to cut, they should seriously think again. At this point Mike and his Mayo Jar are gonna need to be wooed.

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