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Forum List » Value Ideas and Strategies Share and discuss value investing ideas and investing strategies.  
Citigroup Inc. to Improve Over Years to Come
Posted by: Muhammad Bazil
(IP Logged)
Date: March 18, 2013 11:33AM
Citigroup Inc. (C) was incorporated in March of 1988 as a global diversified financial holding company and has since expanded to maintain around 200 million customer accounts in over 160 different countries and jurisdictions around the globe, split into two different sections. These sections are: 1. Citigroup, which is the segment dealing with Citigroup’s Global Consuming banking business group, as well as their Institutional Clients Group 2. Citi Holdings, which deals with Citigroup’s Brokerage and Asset Management, Local Consumer Lending, and the Special Asset Pool A Step in the Right Direction As of March 14, 2013, Citigroup still cannot match their biggest rival, JPMorgan Chase & Co. (JPM), who holds the top spot for revenues in investment banking. Though this may be the case, it ties with competitor Barclays PLC (BCS) at making the biggest improvement since 2011. Could this signify that Citigroup will improve over coming years? That is a strong possibility. Another indicator of this is that, in latest news from London, the London Metal Exchange has selected three banking companies to help with their self-clearing platform to be compliant with the financial market reforms. These three companies are to include Citigroup, along with JPMorgan and Bank of America (BAC). A Safer Way to Bank According to an article on Reuters.com, a stress test was conducted regarding certain banks and their customers. In the end, the results were surprisingly in favor of Citigroup. Though they have had to be bailed out on several occasions by the United States government, the results posted by the Federal Reserve regarding this study, clearly showed that Citigroup was a safer banking choice than even JPMorgan, the top competitor in revenue. The Tier 1 ratios were better around the board for Citi. For Better or Worse Though Citigroup has passed the test for safer banking option, there are many that feel this was a mistake. Financial analysts were struck with awe regarding this matter. One of the main reasons for this is because of the bank’s track record. As previously mentioned, Citi has been bailed out by the U.S. government on several occasions. So how are they a safer banking choice? The answer, if you are familiar with the stock of financial institutions, is simple. Through the analysis portion of this test, it was shown that Citigroup’s capital, though taking a dip, would still beat that of JPMorgan by 2% over the next two years. This doesn’t seem a lot, but it shows that if losses were to be handled at any time, Citigroup would have a better cushion to deal with them. If JP has the bigger revenue, how would this be possible? Although Morgan has the highest reported revenue, Citigroup makes up for it in its logical banking practices. Simply put, they have lower credit ratings and prices for credit default swaps. This allows more customers to go with them. In some lighted instances though, this may also show that they are not safer, but the proof is in the tests. One advantage they had over this test was that they started with a better ratio than their competitor. This gave them a jump start from the beginning. It may be unfortunate for Citigroup soon though. The Federal Reserve plans on changing the tier rules which would end up setting the bank back when analyzing their deferred tax assets. That will not bode well for Citi if it happens. They depend on those assets due to the losses they faced during previous bailouts. To Sell or Not to Sell In light of all that Citigroup has been through in the past, they seem to be at a steady rhythm now. Does that mean that you should buy any stock now? The answer is no. The only logical action at this time is to sit on any Citi stock you have. Those of you that are skeptics and feel it is best to sell, my advice is to hold, just to see what happens. Give yourself a little time to make a better analysis. Citigroup has the chance to improve over years to come.
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