"With strong capital, strong liquidity and a strong franchise, we are looking forward," said Citigroup (NYSE: C) CEO Vikram Pandit this morning. He's only mostly right, I'd say.

After selling one-third of itself to taxpayers, Citigroup's capital is indeed quite strong. And with the FDIC backing a good chunk of its debt, liquidity flows freely. The whole "strong franchise" part, though, is up for debate.

Why? Because even as financial markets spring back with a vengeance, and competitors like JPMorgan Chase (NYSE:JPM) mint money, Citigroup is still struggling with that little thing called "profit."

Net income for the third quarter came in at $101 million. After charges, preferred dividends, and one-time gains from the recent equity conversion, common shareholders took a loss of $0.27 per share.

Net credit losses were $8 billion. Allowance for loan losses nudged up to $36.4 billion, but the allowance as a percentage of non-performing assets shrank to 111% -- by far the lowest level in nearly two years. As a percentage of total loans, non-performing loans jumped to 5.25%, from 4.4% last quarter. Delinquent consumer loans 90 days past due increased from 4.24% to 4.7%.

All of which suggests that the "strong franchise" Pandit boasts about is questionable. There's no doubt that the capital and liquidity concerns that almost made the bank go kablooey last year are over. But now a potentially bigger problem -- actually earning money -- looms front and center.

Will Citi even return to profitability? Someday, somehow, of course. These things pass. But during this past quarter, as a result of the equity exchange offer, shares outstanding grew from 5.5 billion to nearly 23 billion. That massive dilution means Citigroup now has a market cap of about $110 billion.

The question, then, should be whether Citigroup can ever return to making something like $10 billion a year -- a figure that would make its current market value appealing. That goal is no sure thing. Remember, one-third of Citi's balance sheet is quarantined in a segment called Citi Holdings, which the company treats like a disease it's forced to carry, and is busy trying to sell. Even when losses subside, that scaling down will seriously question where Citi's earnings power will come from, and really question whether earning $10 billion or so per year is feasible.

Citi is sort of a worst-practices case study for its competitors: It doesn't have the investment banking talent of JPMorgan or Goldman Sachs (NYSE:GS), and its loan book doesn't have even close to the earnings strength of Wells Fargo (NYSE:WFC) or US Bancorp (NYSE:USB).

It doesn't have much, save for the enduring love of Mother Government, who's always there to give it a hug and a little capital when it needs it.

Maybe you disagree? Feel free to share your thoughts in the comment section below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.