How Citigroup, CEO Pandit Turned Themselves Around

In the near term a variety of factors pose threats, including a remaining level of uncertainty about the economy and geopolitical problems. JPMorgan also cited regulatory risks, worse credit losses than expected and the unpredictability of fixed-income markets.

As such, not everyone is ready to give the company a total thumbs-up yet.

"Earnings could be sub-par for at least the next few quarters given the pressures of the credit cycle," Scott Sprinzen, a managing director in financial institutions for Standard & Poor's, told CNBC.com. "But we don't see a return to the substantial losses that they incurred over the past year, year-and-a-half."

AP  (AP Photo/Mary Altaffer)

S&P holds a an A-plus rating for Citigroup's banking activities and single-A for the holding company.

"They've been doing a lot in terms of bolstering their capital and liquidity and downsizing the balance sheet," Sprinzen said. "They've also divested things for the sake of bolstering capital which, given their druthers, they might have wanted to keep."

The reaction from investors on both the retail and institutional levels has been remarkable.

Fairholme Capital and Paulson & Co. have both made large moves in Citi over the past several months. The lower-than-expected 8.5 percent yield this week's sale of $2 billion trust preferred auction fetched sparked additional interest.

A lower yield reflects strong demand as the seller can offer a lower payoff to get investor interest. The preferred sale also provided hope to other banks in Citi's boat that the ability to raise capital is strong. as they have to start repaying government bailout funds.

Citi even has begun to attract interest from options investors again.

Normally a stock priced so low is considered a de facto option because of its risk, but traders are now picking up call options as sentiment grows that the stock could rise.

"What we're seeing is a lot of institutional interest that's doing this," said Mike Khouw, director of US derivatives trading at Cantor Fitzgerald. "Essentially people are saying this is a stock that can move."

While many analysts are treating warily Citi's claims that it could soon return to the days of $20 billion annual profits, the appetite for the once-dead stock definitely is back.

Pandit, in his CNBC interview, said the company has cut leverage to a 12 to 1 ratio, has $200 billion of liquidity and $36 billion in reserves—a position analysts cite as a strong positive for Citi—and is "completely concerned with making sure we're profitable as a bank."

"We come into 2010 very strong positioned," he said in remarks that foreshadowed testimony he gave to Congress earlier this week that Bove described as "ebullient." "The long-term profitability picture is clear."