Did Citigroup (NYSE: C) try to pull a fast one on Wall Street? When the company reported first quarter earnings, it highlighted its net income of $3 billion in comparison to the fourth quarter's $1.3 billion gain. That allowed it to show a sizeable gain. But as the New York Times notes, the "best practice"--or at least the norm--when reporting earnings, is not to show sequential comparisons but rather year-over-year comparison.

Year-over-year comparisons make the most sense because there is often a seasonal component to earnings, and if you do not seasonally adjust, the comparison is less meaningful. For banks, however, the seasonal component is much less than, say, retail companies, though there's anecdotal evidence some seasonality exists.

You could make the case, though Citigroup hasn't weighed in publically on the matter, that sequential comparisons are fine for banks. But if you are going to make such a change, you have to do it the right way. You have to prepare the analyst and investor community by noting well in advance that the change will occur, giving an exact date.

You also have to spell out the benefits of taking a non-traditional approach, justifying the switch. It does not appear the IR staff at Citi undertook this effort.

So in the end, it looks like the only reason for the change was to fool people into thinking that earnings were a bit better than they actually were. While I am sure there was internal debate about this, the board needs to weigh in and make clear that such gimmicks do not make the company look professional.

Our sense is that the company will go back to year-over-year comps and sequential comps next go-round.

For more:
- here's the article

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