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The more pies in which you have fingers, the greater your chance of getting burnt. Citigroup on Friday felt pain in almost every business: from more third degree burns in its structured credit portfolio to a light $202m singeing from Old Lane – the hedge fund formerly run by Vikram Pandit, Citi’s chief executive.

But masochistic investors enjoyed it. Even though the accumulated charges forced a $5bn net loss in the quarter, Citi shares jumped and are now about 44 per cent off last month’s low. Does that make sense? For the optimistic, yes.

Their view is that the huge writedowns in the toxic structured credit portfolio – $6bn this quarter – are coming to an end. There are also signs that the leveraged loans clogging up Citi’s balance sheet are starting to be sold or marked down to levels where future losses should be less onerous. If the destabilising risk of huge quarterly charges has receded, confidence rightly improves.

The trouble is, investors are in danger of underestimating the unpredictability of the slower-moving losses that Citi still has to absorb on its consumer lending business. Consumer-related credit charges and provisions came to $6bn this quarter. Those could continue rising in the coming months as the effects of the US slowdown are felt. And with house prices and credit markets still in uncharted territory, it is dangerous to rely too heavily on historical loss profiles in forecasting the future.

A reasonable scenario is that Citi’s biggest losses are behind it, but that its earnings power continues to be sapped by a steady stream of credit hits. That would make it tough to rebuild Citi’s capital position quickly, crimping its growth potential. JPMorgan raised an extra $6bn this week, in spite of already having a Tier 1 ratio of 8.3 per cent. Citi’s 7.7 per cent ratio might be enough, but it is uncomfortably weak in comparison.

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