Going into this morning’s first quarter earnings report, analysts had been expecting to see State Street report earnings of $0.85 per share, but actual earnings came in above estimates at $0.88 per share.

During the same period last year the company had earnings of $0.75.

Revenues during the quarter were $2.36 billion, versus analyst estimates for $2.29 billion.

Assets under management rose 7.7% year over year to $2.1 trillion.

At first glance it looks like a horrible quarter for the company, with a reported $2.5 Billion loss for the three months ended June 30, but you have to consider how the quarter performed compared to what Wall Street analysts had been expecting to see. On a per share basis, today’s loss represents a 54 cent loss, but analysts had been expecting to see the company show a loss of 66 cents a share in the quarter. To get a better idea of just how tough things are compared to last year, consider that for its second quarter 2007, Citigroup showed earnings of $6.23 billion, or $1.24 per share.

Following today’s second quarter earnings numbers, Citigroup has traded up about 8% in premarket action.

There has been much speculation over the banking industry, mainly due to the credit crunch that the country is going through, but with Citigroup’s better than expected numbers, coupled with better than expected numbers earlier this week from JP Morgan (NYSE: JPM) and  Wells Fargo (NYSE: WFC) Wall Street is going to have to decide if things are really as bad as some people have been predicting. On the other side of the coin, Merrill Lynch (NYSE: MER) posted a larger than expected loss last night, so we are definitely getting some mixed signals from the industry.

So, we are still in very volatile and uncertain waters, but at least for today, Citigroup investors will have something to smile about. How long that will last is anyone’s guess at this point.

Rumors have been swirling all around Merrill lately, and now it appears as though the SEC is going to be investigating charges that the company used deals with hedge funds to delay its subprime losses. As Lita Epstein writes in her SEC probe article:

“Initial reports indicate Merrill Lynch sold commercial paper to hedge funds with promises of buying it back a year later and guaranteeing the hedge funds a minimum return.”

Definitely some serious charges there. Shares of MER are currently trading down 8.1% to $57.13, and traded down as low as $54.00 earlier in the session.