It’s all about strategy
I particularly like stocks that exhibit peerless tact in implementing goal-oriented strategies. Perhaps this factor contributes most to my advocacy for Citigroup.
I am intrigued by the importance attached to strategy by decision makers at Citigroup. It suggests a lot about the long-term future and gives investors a reason to hold on.
For starters, Citigroup is emphatic on cost cutting. Vikram Pandit, the CEO, has been previously noted for exclaiming his solid stand on costs. Over the past few years, especially after the dreaded 2008 financial crisis, Citigroup has taken a prudent approach towards expenses. This quarter, expenses were down 6 percent. Unlike close competitor Bank of America (BAC), Citigroup has not really been aggressive with job cuts. While lay-offs bring quick results, most of the time they have a tendency to somehow end up in the courtroom.
Another thing that gives me more reason to believe that Citigroup has foresight is the care it takes in averting serious offenses like fraud allegations. This is a lesson that close competitor HSBC Holdings Plc (HBC), should learn and learn well. How does it intend to explain the overwhelming fraud claims that have, as of the moment, gone viral? In fact, FT says that HSBC may face fines way beyond $1 billion. The investment bank is said to have played an instrumental role in facilitating money laundering for organized crime units like terrorists and drug cartels. These allegations add a derogative touch to the mere mention of HSBC and further place it under excessive public scrutiny. The scandal is growing by the day and as of now, India has joined the investigations.
Citigroup has also managed to dodge the Libor scandal bullet that has since blown out of proportion. Its bottom line will not be affected by hefty fines. The same cannot be said about Barclays which paid $450 million in fines.
From looking plainly at the way things are shaping up, it would be in order to say that Citigroup is carefully analyzing its steps. It’s not a coincidence that it has managed to avoid the line of fire; it’s all about strategy.
A dark shade of gloom
While the future looks somewhat bright, bears indeed do have grounds for lashing out at the stock right now. Citigroup recently announced its earnings. They were not all that amusing.
It posted dwindling profits, recording a 12 percent drop on a year-over-year basis. Revenues also dipped 10 percent. All the same, these figures, however discouraging, are better than company reports released three months ago.
In addition, Moody’s recently performed its dreaded downgrades, including Citigroup alongside Bank of America. Currently, Citigroup scraps in the bottom-level rankings, as it is placed a mere two notches above junk status.
In general, this year has not been all that inviting for Citigroup. A good example of the growing strife among shareholders is the April shareholder rejection against Vikram’s $15 pay package.
All the same, these factors cannot be used to spell doom for the stock. The whole banking sector is not performing as expected, as every single player in the space is grappling with an ailing economy and various other internal discordance.
Take the case of JPMorgan (JPM). In as much as it is the biggest bank by assets, it has been pushed into a rut following the erroneous trading earlier this year that paved the way for losses that have since been reported to have reached $5.8 billion. Over the past few months, JPMorgan executives have been expending all their energy addressing press conferences amid concerns that the losses may balloon even further (after all they were first reported at $2 billion).
Bank of America, on the other hand, was also dragged into the Moody’s downgrade. In addition, most of the expenses suffocating its bottom line stem from litigation. Unfortunately for the bank, it still has a several pending cases – all of which are expensive to run.
Citigroup’s secret weapon
The disparities in regulations across the global market have greatly slowed progress on a global level. Nonetheless, mainstream markets like the U.S. and Europe have been hit harder. This is chiefly because investors and banks in mainstream markets take a longer time to restructure and adjust to new regulations. In as much as things may come back to normal, there is still some uncertainty as mainstream investors are still somewhat skeptical.
All the same, Citigroup has a secret weapon – emerging markets.
Back in April, it was recognized for being the number one advisor to companies in emerging markets. This came as a score to Pandit. He wanted to increase revenue from investment banking outside U.S. borders.
Citigroup is well positioned in emerging markets. And emerging markets are not adversely affected by slowdowns as they constantly feel the need to minimize the gap between themselves and mainstream markets. As such, Citigroup will continue growing behind the shadows.