Citigroup analysts appear to be a hopeless lot. Please consider this July 1, analyst recommendation: Citi tells clients to buy Bank of America.

The analysts added Bank of America (BAC) to their “Ten+ Aggressive Growth List,” telling clients that the Charlotte, N.C.-based company is a good long-term investment and that it should return to normalized annual earnings of $3 a share in a few years.

“We believe the firm stands to benefit long term from market-share gains across a variety of businesses, including traditional banking, mortgage origination, retail brokerage, and investment banking,” Citi analysts said in a research note.

They also highlighted Bank of America’s record of making acquisitions and argued that two controversial recent takeovers — namely, Countrywide Financial and Merrill Lynch — offer good growth opportunities for Bank of America when the mortgage and capital markets stabilize and resume their expansion.

Citi rates Bank of America’s shares as a buy with an $18 price target, implying 36% potential upside from their closing price Tuesday.

Flashback March 31, 2009

Inquiring minds are taking another look at a post of mine from April 2, 2009 called Citibank to Investors: We Suggest You Bet Against Us.

In a statement that ought to scare the hell out of the bears Citigroup Says Buy Bank Puts Because Rally Will Fade.

March 31 (Bloomberg)

Investors should buy put options on financial companies because derivatives-market trading suggests the industry will retreat after a 43 percent surge since March 6, Citigroup Inc. said.

“Despite the rally, credit and option markets are pricing in increased downside risk,” New York-based Citigroup strategist Alvin Wang wrote in a note sent to clients today.

He recommended puts giving the right to sell the Financial Select Sector SPDR Fund, an exchange-traded fund that tracks a basket of bank stocks, for $8 before May 15. The XLF, as the ETF is known, added 5.5 percent to $8.81 in New York, bringing its gain since March 6 to 43 percent. The May $8 puts fell 25 percent to 70 cents today.

Citigroup is essentially telling investors to bet against JPMorgan, Citigroup, Bank of America, and a whole slew of financial stocks that have been smashed to smithereens.

Pardon me for asking, but where was this advice a year ago, or six months ago, or even three months ago?

I am not particularly bullish on financials right now, but perhaps I ought to be on the grounds that Citigroup has not gotten anything right during this economic decline and is now recommending a bet against itself.

Indeed, Citigroup’s recommendation could be a nice contrary indicator especially as More Ugly Details Emerge On “Geithner’s Heist America Plan”.

XLF 15 Minute Chart

Those $8.00 strike May PUTs are likely to expire worthless. If so, I have to ask the question: Can anyone at Citigroup get anything right?

Can Citigroup Strike Out Again?

Those strike $8 May XLF PUTs did expire worthless. Indeed someone could have had a 300% profit by betting on $8 May XLF CALLs.

At the time of Citigroup’s inspirational XLF PUT recommendation this is what the weighting of the XLF sector looked like. Note that Bank of America had the second largest weighting. Click on link for current weightings.

XLF Daily Chart

click on chart for sharper image

Bank of America Daily Chart

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Excuse me for asking but exactly where was the Citigroup recommendation to buy Bank of America at $3? $4? $5? $6?

The answers are nowhere, nowhere, nowhere, and at $6 a recommendation to bet against financials via PUTs, a recommendation that went to $0.

Now, after a 300%+ rally from the lows, Citigroup analysts advise buying Bank of America stock.

This is not a recommendation, but it just may be time to buy some XLF PUTs. My big caution on the PUT trade is whether or not Geithner’s Heist America Plan gets off the ground.

Mike “Mish” Shedlock
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