Call it The Miracle on 54th Street.

The mood at the Manhattan headquarters of the US banking behemoth, Citigroup, must have been pretty giddy in the hours after chief executive Vikram Pandit sent his miracle memo this week.

In the note, Pandit asserted that Citi had turned a profit in January and February and that the bank’s capital reserves were “strong”.

In a market blighted by relentless gloom and doom, that was enough to light a fuse under global stock markets. Citi shares surged 38% on Wall Street, igniting a similar blast-off in the shares of rivals Bank of America (+28%) and JPMorgan Chase (+23%).

The CEO’s upbeat appraisal, which began its life as a staff memo, was released to the media; thereafter, it took on new proportions as Pandit’s panegyric to the reviving fortunes of the banking sector.

Investors suddenly saw a glimmer of hope that there may be life at the end of the tunnel for the nation’s beleaguered banks. The Financial Times referred to it as the “magic memo”.

Billions in losses

But hang on a minute: if you’re like me, a pretty simple question – or rather, series of questions – pops to mind.

Are we talking about the same Citigroup that’s on $45 billion of government-granted life support?

The same Citigroup that's lost more than $37 billion dollars in the past five quarter, stricken by toxic assets and soured consumer loans?

The same Citigroup that's been bailed out three times by Washington, and whose stock sank below $1 for the first time last week as investors plumbed the depths of despair?

Finally, are we talking about the same bank that’s about to relinquish a 36% stake to the US government – dare we call it “nationalization”?! - in its bid to secure another handout from Washington?

Indeed, we are. In the current febrile climate, any tidbit of good news – especially if it comes directly from the mouth of a big boss – is enough to send a stock surging 38% in a single session, as Citigroup’s did.

You might object that a bank’s CEO is not the most impartial source of “good news” about his company. But in a recession, beggars can’t be choosers – investors seem willing to take their positive tidings wherever they can get them.

Fleeting “good news”?

Pandit’s memo was, as some pointed out, short on explanatory details – that place where the devil habitually resides. But like I said, the mere mention of profitability from a bank that’s seen its stock nosedive 90% since last September can be construed as a big improvement.

That said, there are many caveats here.

Citigroup and its peers are not out the woods yet – not by a long shot.

Today’s rally could prove the most fleeting of phenomena in this crisis. There’s still a month left in this quarter and we’ve all seen how long a month can be in this credit crisis – and how much can transpire in that time.

The Wall Street Journal reports, meanwhile, that US officials are examining what steps they might need to take if Citigroup's problems mount.

The government, according to the paper, says no rescue is imminent and the talks are geared towards contingency planning.

But in today’s Great Recession, todays contingencies can quickly become tomorrow’s catastrophes.