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Citigroup Puts the Fun Back in Taking Huge Losses

A few months ago, the Bank for International Settlements, which acts as a bank for the world’s central banks, warned in its annual report that “the financial sector needs to recognize losses” and “adjust balance sheets to accurately reflect the value of assets.” We are starting to get a taste of what that means, and it’s not all bad.

This week, Citigroup Inc. said it would record a $4.7 billion pretax charge to earnings after agreeing to sell its stake in its brokerage joint venture with Morgan Stanley. In hindsight, Citigroup had been overvaluing the business on its balance sheet for months, and maybe years. Yet investors took the news well. Citigroup’s stock price rose. Shareholders seemed glad to get the matter over with, even though the loss wipes out about a quarter’s worth of earnings.