There is no denying that Citigroup Inc. is making progress in its restructuring efforts. But is it making enough progress?

Cheerleaders for and at the company point to its recent divestitures, its head-count reductions and its stronger capital ratios as clear evidence of improvement. Skeptics point to the high turnover of executives, the continued drag from assets identified as undesirable, and the economic headwinds confronting the businesses that Citi plans to keep.

Friday's second-quarter earnings report did little to settle the issue, with both sides finding evidence to support their arguments.

The only people who did not find what they were looking for were the ones waiting for a radical overhaul, for the type of grand gesture that would be transformational in its own right while also helping to lift the company out from under the protection of the federal government. But even if Citi wanted to make such a move, it is unclear how the company should proceed.

"Grand gestures may require a magician, and magicians generally provide illusion rather than reality," said Gary Townsend, the chief executive officer of Hill-Townsend Capital LLC in Chevy Chase, Md. "So I'm not looking for something grand and great. There is sufficient runway to be patient."

Government aid has accounted for the bulk of the reduction in insolvency risk at Citi. But the company also has taken action to help build a cushion. The June 1 sale of Smith Barney into a joint venture with Morgan Stanley generated a $6.7 billion gain in the second quarter — enough to offset losses and put Citi in the black — and helped lift its Tier 1 capital ratio from 11.9% at the start of the quarter to 12.7% at the end of it.

Citi also struck a deal to sell its Nikko Cordial Securities Inc. business in Japan to Sumitomo Mitsui Banking Corp. for about $7.9 billion, and it is in the middle of an exchange offer, set to expire Friday, that would swap out $33 billion of dividend-paying preferred securities for common stock.

But even with those moves, analysts worried about whether Citi could find its sense of direction, let alone stay on course, as it made a series of management changes — including the replacement of Edward "Ned" Kelly as chief financial officer a week before the earnings release — and clashed with some of its regulators in Washington.

"Between the constant shuffling of senior management and the various reports we've seen in the past few months about conflicts between different constituencies of regulators, I don't think the company has been putting out a strong sense of who's in charge," said Kathleen Shanley, an analyst with the independent debt-research firm Gimme Credit.

Vikram Pandit, Citi's chief executive, seemed determined to telegraph a different message Friday, taking part in a conference call with analysts after skipping the previous quarter's presentation to Wall Street. He spent most of his time on the call trumpeting the progress the company has made in cutting costs and reducing balance sheet risk. Head count, targeted at 300,000 by June 30, came in even lower at 279,000, he said, down 30,000 from the previous quarter. Total deposits rose 6%, though they were flat with the year-ago quarter.

"We are delivering on our plan," Pandit said. "Upon the successful completion of the exchange offer, we will be very strongly capitalized by any measure."

The new CFO, John Gerspach, said the clear delineation between Citi's core and noncore assets, announced in January when the company split its businesses into divisions (Citicorp and Citi Holdings) has helped to maintain focus. On Friday the company broke out results for the two divisions for the first time.

"It is more than just a change in the way we report the numbers. It's a change in the way that we actually manage the business," Gerspach said.

But until Citigroup can actually sell or otherwise unwind the unwanted assets of Citi Holdings — including consumer lending businesses dependent on securitization in the secondary markets — the separation means little to investors.

"We think Citi's ability to sell assets apportioned to Citi Holdings is critical to [the] success of company," Stuart Plesser, an analyst with Standard & Poor's Equity Research, wrote in a note to clients.

Ironically, though, it was the Citi Holdings assets that generated higher second-quarter revenue versus last year, not the consumer banking and institutional clients businesses that make up Citicorp.

Citi Holdings got a boost from the gain on the Smith Barney transaction, along with higher valuations for certain securities that are accounted for on a mark-to-market basis. Its revenue, tempered by sharply higher credit costs, jumped from $2.1 billion in last year's second quarter, to $15.8 billion.

At Citicorp, revenue dropped 11%, to $15 billion, as credit losses, lower volumes and the impact of foreign exchange offset expense reductions. Total credit costs for the group jumped 57%, to $2.8 billion, reflecting $1.6 billion of net credit losses and a $1.2 billion addition to loan-loss reserves.

Gerspach defended the makeup of the Citicorp division, saying the businesses it includes have far more predictable revenue than the assets in Citi Holdings.

The Smith Barney gain helped lift Citi's companywide revenue by 71%, to $30 billion. Net income from continuing operations was $4.28 billion, or 49 cents a share, compared with a year-earlier loss of $2.5 billion, or 55 cents.

Total credit costs soared 81%, to $12.4 billion; they consisted of $8.4 billion in net credit losses and a $3.9 billion loan-loss reserve build. "Our expectation is that until Citi Holdings is substantially wound down, there will continue to be some volatility in the earnings stream," Gerspach said.

But he and Pandit indicated that the pace of credit deterioration is set to moderate, as a result of a slowdown in the number of loans turning delinquent. That would be an important milestone for anyone looking for improvements at Citi.

"There's been demonstrable progress. It's particularly evident in the capital structure," Townsend said. "The big question for them, and for Bank of America and JPMorgan Chase for that matter, is how long into the future it will be before we see actual reductions in credit expense. I would call that progress in its own way."

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