A Financial Analyst’s View of Citicorp (NYSE: C) Accounting Practices

October 17th, 2010 | by Heather Munoz |

Outspoken financial analyst Michael Mayo, 47, who works for Crédit Agricole Securities, has finally got the meeting with top Citicorp (NYSE:C) executives he has been seeking.

He first came into conflict with Citicorp executives in 2002 after publicly criticizing the group about their risk management policy and aggressive accounting tactics.

Mayo says, “Many of Citi’s problems relate to risk management, and there are several red flags.”

In his recent report, “A Matter of Trust”, Mayo wrote that the way Citicorp planned to meet its financial targets “can encourage short-term excesses over long-term prudence”.

Mayo believes Citicorp is not profitable, even though its accounting shows this. Citicorp, in his opinion, needs to review its accounting practices.

Citicorp’s use of the deferred tax asset accounting issue, which enables companies with losses to use future assets to reduce tax obligations, is of particular concern to Michael Mayo.

For almost two years Mayo’s request for a meeting with Senior Citigroup officers was ignored, even though it is not unusual for Wall Street executives, to meet with stock analysts at times.

In a recent interview Mayo said, “It is aggressive accounting.” Not writing down tax assets “is a window into the risk management practices at the company. It is emblematic of a bigger issue, of being overly aggressive.”

Unlike companies, in a similar position to itself, Citicorp has not written down any of its $50 billion deferred tax assets.

Mayo also disagrees with the public announcement by Citicorp that it plans to develop assets in the future. “I think it is inappropriate to list any target based on growth of assets because it is dependent on outside economic forces, which Citi can’t control,” he said.

The response of a Citicorp spokeswoman was, “Citi is very comfortable with the recording of our deferred tax assets. We have provided extensive detail on our D.T.A. in various regulatory filings.”

Even a chance meeting with Citigroup’s chief executive, Vikram S. Pandit, by Mayo in Boston in June 2010, did not get an appointment for a meeting.

In July 2010, at Citigroup’s second-quarter earnings conference call with analysts, Mayo publically raised the issue again.

As a result of this public stance, Citicorp Management on Sept.10, 2010, finally set a meeting date.

On Friday 15^th October 2010, Michael Mayo met with Citigroup’s chief executive, Vikram S Pandit and chief financial officer John C Gerspach.

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