Bloomberg columnist Jonathan Weil writes that this week Citigroup said it would record a $4.7bn pretax charge to earnings after agreeing to sell its stake in its brokerage joint venture with Morgan Stanley. In hindsight, Citigroup had been overvaluing the business on its balance sheet for months, and maybe years. Yet investors took the news well. Citigroup’s stock price rose. Shareholders seemed glad to get the matter over with, even though the loss wipes out about a quarter’s worth of earnings.
Let that be a lesson to other financial institutions. Now is as good a time as ever to fess up to long-overdue red ink. The stock market is surging, and the Federal Reserve and European Central Bank are doing all they can to prop up the industry. Booking pent-up losses gets bad news into the past and helps banks build credibility, which they will need in abundance the next time they go to raise fresh capital. As Citigroup’s chief executive, Vikram Pandit, put it this week, 'the more we put the past behind us, the more we can focus on our future'.
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