Citigroup: Will Bank Comeback Mean Taxpayer Payback?

April 17, 2009— -- The nation's largest banks have made quite a comeback. Having nearly brought the market to its knees a few months ago, the financial sector has surprised experts with impressive profits.

Citigroup -- widely considered to be the country's weakest big bank -- reported this morning net first-quarter income of $1.6 billion, beating analyst expectations and making it the bank's best quarter since 2007, Citi CEO Vikram Pandit said.

Citi's news comes on the heels of reports showing better-than-expected, first-quarter profits by three other major banks: $2.1 billion for JPMorgan Chase, $1.7 billion for Goldman Sachs and $3 billion for Wells Fargo.

Since the beginning of March, most major banks have seen their stock prices soar. Citigroup saw the most dramatic increase; its share price shot up 75 percent.

"I think the American banks are healthy," said said Dick Bove, a banking analyst at Rochdale Securities. "In the fourth quarter, we saw people put over 100 billion a month in net new deposits into the banking system and that's never happened before."

In addition to record deposits coming from U.S. consumers, financial firms are also benefiting from low-cost loans from the Federal Reserve, as well as stronger performance from their investment banking arms.

But the bad news is that lending to consumers and businesses is still lower than it was before the start of the recession, raising criticism from those who argue that the banks should be spending the billions in aid they received from the government's Troubled Assets Relief Program to provide more loans. Bank executives have countered that they're not to blame for lower lending levels; reduction in lending by non-bank businesses hurt or shuttered by the recession is the problem, they say.

Meanwhile, the bank's impressive profits are raising another TARP-related criticism: If banks are making money, why aren't they paying the TARP funds back?

Some bank chiefs say they'd like to repay the TARP funds immediately, but are awaiting guidance from the U.S. Treasury Department.