Citigroup(C) short interest rose in the second half of April, the same period in which Citigroup surprised analysts by turning in its first quarterly profit since the second quarter of 2007. Citigroup short interest rose to 482 million shares from 416 million during the previous two-week period. Citigroup is perennially the most actively shorted ticker on the New York Stock Exchange. That's not surprising since the bank is nearly always the most actively traded name on the long side as well. Citigroup short interest had risen for several successive reporting periods spanning at least four months until that string was broken in the second half of March. Citigroup short interest had continued to fall since that time. The NYSE releases short interest data twice a month. Short-sellers borrow shares in the hope of buying them at a lower price in the future and pocketing the difference. Though Citigroup saw its shares pass the $5 mark in the days following in April 19 earnings surprise, the stock eventually fell well below the $4.56 close on April 18. Citigroup shares closed Tuesday at $4.17. There are several possible explanations for investors' renewed negativity around Citigroup. First, the markets overall have taken a beating. Citigroup is down 8.55% since April 19 and the widely followed financial sector ETF XLF(XLY) has dropped 3% during the same time period, roughly equivalent to the S&P 500's fall. Citigroup may also be facing doubts about the quality and sustainability of its earnings. On the bank's April 19 earnings conference call, UBS analyst Glenn Schorr asked Citigroup Chief Financial Officer John Gerspach what portion of Citigroup's investment banking revenue came from marking up securities vs. trading flows and Gerspach declined to comment. Writing in the Wall Street Journal the next day, columnist Peter Eavis argued that Citigroup's expenses should ordinarily be rising if it is growing revenue. The fact that they are not suggests the earnings may indeed be merely the result of marking up securities, an earnings formula that would seem to be difficult for investors to count on for long. Further trouble for Citigroup came this month via a pair of embarrassing Securities and Exchange Commission filings. A May 7 filing noted that Citigroup could lose $14.4 billion in funding if it is downgraded by Standard & Poor's, which has a "negative outlook" on the bank. |