When I was a kid, and living in South Florida, whenever some money was needed for a local parade or little league team, all one had to do was contact Barnett Bank, Sun Bank, or Southeast Bank to be a sponsor. Of course, none of those banks exist anymore, nor do I live in South Florida. But my point is, banks used to be regarded as our friends and allies. Now with the bulk of banking assets in relatively few banks (over 60% of banking assets reside in the ten largest banks) and the apparent utter disregard big banks have for their customers, we have journalists cheering hard times for banks. The cheerleaders of gloom are now gathering again, around Citigroup, Inc. (C, Financial).
Citigroup is the nation's third largest bank by assets, with just over $2 trillion. Only JPMorgan Chase & Company (JPM, Financial) and Bank of America, Inc. (BAC, Financial) are larger. Citigroup's shareholders have suffered a nearly unending string of indignities. If it is not a 10 for 1 reverse stock split, it is the accounting sham of Citi Holdings. The most recent surprise was picked up by the Wall Street Journal on February 22, 2012, and has to do with Citigroup's existing stake in brokerage Smith Barney. Apparently, Citigroup had been overvaluing its stake in the company, and will be forced to take a write down of nearly $2 billion.
Citigroup stock has fallen over 94% since 2007 to where it currently stands at between $32 and $33 per share. Its 52 week range is from $47.50 to $21.40. It has a price to earnings ratio of 8.8, and a market capitalization of $95.3 billion. It pays the same quarterly dividend as other highly distressed banks, a penny a share, for an annual yield of 0.10%. I have not run across any sign that the U.S. Treasury is interested in Citigroup raising that nominal dividend anytime soon.
If you did not click the link, Citi Holdings was formed in 2008 by Citigroup at the height of the banking crisis. At its inception, Citi Holdings was meant to segregate Citigroup's most troubled assets, and it held about $785 billion dollars on its books. But from the start, management regarded Citi Holdings as a non core asset, so over the subsequent three years, as management was writing off hundreds of billions of dollars, management could boast of improvements in core earnings. Since 2008, Citigroup has reported EBBT, or "earnings before bad things". Telling is that all of Citigroup's mortgage holdings, good and bad, were placed in Citi Holdings. So were all student loans, auto loans, and commercial real estate loans.
Citigroup's fourth quarter of 2011 earnings came in at $0.38 per share, 22% below the $0.49 per share analysts had expected. That $0.49 per share estimate had already been lowered several times in the months and weeks prior to December 31, 2011. The big reason for the disappointment was Citigroup's big investment bank suffered even worse than was expected. Investment Bank problems were not proprietary to Citigroup in late 2011; all money center banks with investment banking units were similarly affected. Citigroup's earning number was later reduced another $209 million after tax, or another seven cents per share, due to Citigroup increasing its litigation reserve to absorb the omnibus settlement regarding claims of fraud in lending, mortgage, and foreclosure practices.
Citigroup management's stated ambition is to return to its roots as a consumer lending leader. It is continuing to shed assets and shrink its balance sheet. Citi Holdings alone has taken over $500 billion off Citigroup's balance sheet in the past four years. Citigroup is also planning to sell its stake in India's HDFC, and its One Main Street domestic lending unit.
Despite the settlement referenced above, Citigroup is far from out of the woods on various claims of mortgage related fraud. Just this week claims were made of fraud by Citigroup in its mortgage transactions with Fannie Mae and Freddie Mac. This follows last months' release of a civil suit over collateralized debt obligations with another $1 billion of exposure to Citigroup. It seems clear that there are more mortgage related skeletons in Citigroup's mortgage portfolio, and it is nearly impossible to put a value on possible exposure. Time will tell.
Moody's Investor Service has again indicated a further lowering of Citigroup's bond ratings, by up to two levels. When will all this Citigroup bashing stop? Citigroup believes it can start returning capital to shareholders by late 2012 to 2013, pending of course that pesky regulatory approval. Citigroup's ability to pass regulatory muster will require a steadily growing economy to raise enough profits to plow back into Citigroup's capital ratios.
Europe also remains an issue for Citigroup. At the end of 2011, the bank held over $33 billion in European exposure, and with southern Europe hobbled, and western Europe stagnating, there are no guarantees for Citigroup in Europe except that there will be more headaches.
There are banks that quarter after quarter, show growth, efficiency, and consistency. Big banks like Wells Fargo and Company (WFC, Financial), and particularly, U.S. Bancorp (USB, Financial) fit that bill. I believe that banks like Citigroup and Bank of America are for speculators, not investors.
Citigroup is the nation's third largest bank by assets, with just over $2 trillion. Only JPMorgan Chase & Company (JPM, Financial) and Bank of America, Inc. (BAC, Financial) are larger. Citigroup's shareholders have suffered a nearly unending string of indignities. If it is not a 10 for 1 reverse stock split, it is the accounting sham of Citi Holdings. The most recent surprise was picked up by the Wall Street Journal on February 22, 2012, and has to do with Citigroup's existing stake in brokerage Smith Barney. Apparently, Citigroup had been overvaluing its stake in the company, and will be forced to take a write down of nearly $2 billion.
Citigroup stock has fallen over 94% since 2007 to where it currently stands at between $32 and $33 per share. Its 52 week range is from $47.50 to $21.40. It has a price to earnings ratio of 8.8, and a market capitalization of $95.3 billion. It pays the same quarterly dividend as other highly distressed banks, a penny a share, for an annual yield of 0.10%. I have not run across any sign that the U.S. Treasury is interested in Citigroup raising that nominal dividend anytime soon.
If you did not click the link, Citi Holdings was formed in 2008 by Citigroup at the height of the banking crisis. At its inception, Citi Holdings was meant to segregate Citigroup's most troubled assets, and it held about $785 billion dollars on its books. But from the start, management regarded Citi Holdings as a non core asset, so over the subsequent three years, as management was writing off hundreds of billions of dollars, management could boast of improvements in core earnings. Since 2008, Citigroup has reported EBBT, or "earnings before bad things". Telling is that all of Citigroup's mortgage holdings, good and bad, were placed in Citi Holdings. So were all student loans, auto loans, and commercial real estate loans.
Citigroup's fourth quarter of 2011 earnings came in at $0.38 per share, 22% below the $0.49 per share analysts had expected. That $0.49 per share estimate had already been lowered several times in the months and weeks prior to December 31, 2011. The big reason for the disappointment was Citigroup's big investment bank suffered even worse than was expected. Investment Bank problems were not proprietary to Citigroup in late 2011; all money center banks with investment banking units were similarly affected. Citigroup's earning number was later reduced another $209 million after tax, or another seven cents per share, due to Citigroup increasing its litigation reserve to absorb the omnibus settlement regarding claims of fraud in lending, mortgage, and foreclosure practices.
Citigroup management's stated ambition is to return to its roots as a consumer lending leader. It is continuing to shed assets and shrink its balance sheet. Citi Holdings alone has taken over $500 billion off Citigroup's balance sheet in the past four years. Citigroup is also planning to sell its stake in India's HDFC, and its One Main Street domestic lending unit.
Despite the settlement referenced above, Citigroup is far from out of the woods on various claims of mortgage related fraud. Just this week claims were made of fraud by Citigroup in its mortgage transactions with Fannie Mae and Freddie Mac. This follows last months' release of a civil suit over collateralized debt obligations with another $1 billion of exposure to Citigroup. It seems clear that there are more mortgage related skeletons in Citigroup's mortgage portfolio, and it is nearly impossible to put a value on possible exposure. Time will tell.
Moody's Investor Service has again indicated a further lowering of Citigroup's bond ratings, by up to two levels. When will all this Citigroup bashing stop? Citigroup believes it can start returning capital to shareholders by late 2012 to 2013, pending of course that pesky regulatory approval. Citigroup's ability to pass regulatory muster will require a steadily growing economy to raise enough profits to plow back into Citigroup's capital ratios.
Europe also remains an issue for Citigroup. At the end of 2011, the bank held over $33 billion in European exposure, and with southern Europe hobbled, and western Europe stagnating, there are no guarantees for Citigroup in Europe except that there will be more headaches.
There are banks that quarter after quarter, show growth, efficiency, and consistency. Big banks like Wells Fargo and Company (WFC, Financial), and particularly, U.S. Bancorp (USB, Financial) fit that bill. I believe that banks like Citigroup and Bank of America are for speculators, not investors.
