Citigroup, GE earnings lift hopes for economy

WASHINGTON (AP) -- A flurry of better-than-expected bank earnings reports this week, coupled with some tentatively encouraging economic data, suggest the economy and the financial system might not be quite as sick as many had believed.

Or are they?

Facing conflicting evidence, analysts are wrestling with whether the economy is making a fitful climb back up -- or whether the crisis will get worse before it gets better.

"We're beginning to get a little visibility on how banged up corporate America has been," Mark Vitner, senior economist at Wachovia Corp., said of Friday's earnings reports from Citigroup Inc. and General Electric Co.

But the better-than expected results from the banking giant and the diversified manufacturer -- among the most beleaguered companies in their industries -- buttress the notion "that just maybe we can see some light at the end of the tunnel now," said Vitner, who anticipates an end to the recession toward year's end but continued high unemployment well into 2010.

The number of Americans receiving jobless benefits has surpassed 6 million for the first time while housing construction unexpectedly plunged in March. Still, even those outwardly negative reports carried some silver linings suggesting the recession could be easing, namely a second straight drop in new jobless claims and some stability in new single-family homes.

Citigroup lost money and General Electric's profits fell, but both beat Wall Street's expectations. Their financial performance is being closely dissected for signposts of where the economy might be heading.

Citigroup reported its smallest loss since 2007. The financial services company posted a first-quarter loss to common shareholders of $966 million after massive loan losses and dividends to preferred stockholders. However, before paying those dividends, which were tied to the government's $45 billion investment in Citigroup, the bank earned $1.6 billion.

GE said its first-quarter earnings fell 36 percent on sharply lower profits at its troubled finance arm. GE, which has a stake in almost every sector of the economy, from light bulbs to locomotives, posted net income of $2.74 billion, or 26 cents per share, after paying preferred dividends. That was down from $4.30 billion, or 43 cents per share, a year earlier.

Wall Street struggled to find direction as investors digested the corporate icons' reports. Stocks fluctuated in the early going, making modest moves as investors were relieved the reports weren't worse, but were mindful that weakness still pervades financial companies.

In midday trading, the Dow Jones industrial average fell about 15 points and broader indices also slipped.

Citigroup's revenue doubled in the first quarter from a year ago to $24.8 billion thanks to strong trading activity in its investment bank. Its credit costs were high, though -- at $10 billion -- due to $7.3 billion in loan losses and a $2.7 billion increase in reserves for future loan losses.

Citigroup has been the weakest of the large U.S. banks, posting quarterly losses since the fourth quarter of 2007. But in March, Chief Executive Vikram Pandit triggered a stock market rally after he said that January and February had been profitable.

It was one of the first signals that the banking industry might not be as sick as many believed. Earlier that month, fears that banks would need to be nationalized sent stocks plunging to 12-year lows.

Citigroup's better-than-expected report came after surprisingly solid earnings from JPMorgan Chase & Co., Goldman Sachs Group Inc., and Wells Fargo & Co. over the past several days. While recent results from these healthier banks have brought some relief to investors, many have been waiting to see how more troubled banks such as Citigroup have fared.