FBN’s Charlie Gasparino is reporting that securities analyst Mike Mayo is ramping up his battle with Citigroup (C) management. According to a note to clients titled “A Matter of Trust”, Mayo said that Citi can’t be trusted to provide investors with accurate disclosure about its financial condition or future plans to make money, and that the firm is setting the stage for future problems similar to those that nearly caused the bank to fail two year ago.
“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.”
Mayo also once again took issue with Citigroup’s account as it relates to so-called Deferred Tax Assets, which are tax credits that under certain circumstances can be used to bolster capital levels and profits. Mayo says Citigroup relies on DTAs to strengthen its balance sheet more than any other of the big banks, and stated, as he has in recent days, that the bank is failing to write down substantial portions of its DTAs, a charge that Citigroup has denied.
“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.”
The note is sure to escalate tensions between Mayo and the big bank, and its CEO Vikram Pandit, who for the past two years has not taken a meeting with the veteran securities analyst, nor have members of his senior staff, including chief financial officer John Gerspach.