C - Citibank

[racemize]

Citigroup so far reminds me of buffetts buy of Salomon. It was a good security buy because of it being cheap but a bad investment.

I'm very confused why bac trades at 13.2x this year earnings and citi trades at 9.7.

I'll continue to hold it but, in retrospect, I should have just continued to hold bac.

I've been completely wrong so far on citi

 

Sounds like you just need to be patient?

[ourkid8]

Exactly!  This is the time to loadup as it's trading significantly below TBV!  My RRSP room is all maxed out and that's where we do not pay any withholding tax on US dividend paying stocks.  (it's a shame our TFSA does not have the same treatment)

 

Tks,

S

 

Citigroup so far reminds me of buffetts buy of Salomon. It was a good security buy because of it being cheap but a bad investment.

I'm very confused why bac trades at 13.2x this year earnings and citi trades at 9.7.

I'll continue to hold it but, in retrospect, I should have just continued to hold bac.

I've been completely wrong so far on citi

 

Sounds like you just need to be patient?

[wescobrk]

That's true, a company can only trade below tbv for so long.

Either the balance sheet is valid or it.

Now a fifteen percent almost 18 percent discount to tbv based on earnings estimates of 1.20 a share on April 14th.

About 35 percent gap with bac.

[ourkid8]

Yes, there were hicups in regards to compliance in the mexico subsidary but that is essentially a one time event and will be rectified.  We all know TBV is growing and the CCAR announcement is just around the corner.  What more of a catalyst do you need?!?

 

Tks,

S

 

That's true, a company can only trade below tbv for so long.

Either the balance sheet is valid or it.

Now a fifteen percent almost 18 percent discount to tbv based on earnings estimates of 1.20 a share on April 14th.

About 35 percent gap with bac.

[ERICOPOLY]

That's true, a company can only trade below tbv for so long.

Either the balance sheet is valid or it.

Now a fifteen percent almost 18 percent discount to tbv based on earnings estimates of 1.20 a share on April 14th.

About 35 percent gap with bac.

 

Not that I know a great deal about banks, but I do know (or rather I think I do) that they don't trade as a multiple to TBV.  They trade based on earnings (and some adjustment for riskiness of their model).

[wescobrk]

That's true Eric.

I agree with that as some companies can be more conservative than others.

I usually try to include earnings as a better way to compare and bac is trading at 13.2x 2014 while citi is trading at 9.7.

[fareastwarriors]

Berstein Research on Citi

Citigroup__Bernstein_3-12-14.pdf

[Aberhound]

This article was already posted on p. 17.

 

http://www.bloomberg.com/news/2013-09-23/citigroup-drops-after-report-that-bond-trading-will-drop.html

 

I read the research report above and it does not seem to model a large drop in trading revenue discussed in the article. Isn't the reason for the discount the expected drop in trading revenue? I have heard that banks are being required to sell their trading arms. Already they are selling the commodity businesses. The price fixing caused by the traders has to end. We have seen the price fixing in the commodity markets, in the currency markets and the bond markets. Presumably there is price fixing in the equities markets and we all suffer from HFT. Why don't investors expect 100% of the trading revenues to cease instead of only 25% or so mentioned in the article? What trading businesses will the banks be allowed to continue going forward? Further, Citibank has a history of going broke so shouldn't Citi, more than any other bank, be the first to be banned from speculating with depositor's monies?

 

I have not taken a position because I do not believe this risk is reflected in the stock price fully and the current discount is caused by a partial concern on the risk. Instead I hold BAC which I believe is less reliant on trading revenues and has a superior banking franchise. I would appreciate hearing others comments on this issue. I also worry about Citibank's derivative exposure being so opaque. The owners of JPM, GS and Citi are the same 0.1% of the population. Perhaps the purpose of Citi is to be the patsy if the derivatives ever blow in order to save JPM and GS just like AIG was used in the last crisis. Somebody has to be the fall guy when there are only 4 big US holders of derivatives and there is a losing side to every trade. I don't see any equivalent to AIG. For all I know Barclays or some other British bank could be the fall guy as regulation is so light in London. However I see Citibank being the perfect patsy because everyone knows their track record and expects them to act stupidly once every decade or so. Short term the stock may do well, but aren't tears the likely end result near the peak of a worldwide debt cycle?

 

I am sorry if my cynicism offends current holders of the stock. I like the people who contribute to this board and I hope my views are helpful to some of them so I have expressed thoughts which normal would remain private.

[plato1976]

I am fine with the EM exposure

but certainly feel uncomfortable with the trading revenue part

 

This article was already posted on p. 17.

 

http://www.bloomberg.com/news/2013-09-23/citigroup-drops-after-report-that-bond-trading-will-drop.html

 

I read the research report above and it does not seem to model a large drop in trading revenue discussed in the article. Isn't the reason for the discount the expected drop in trading revenue? I have heard that banks are being required to sell their trading arms. Already they are selling the commodity businesses. The price fixing caused by the traders has to end. We have seen the price fixing in the commodity markets, in the currency markets and the bond markets. Presumably there is price fixing in the equities markets and we all suffer from HFT. Why don't investors expect 100% of the trading revenues to cease instead of only 25% or so mentioned in the article? What trading businesses will the banks be allowed to continue going forward? Further, Citibank has a history of going broke so shouldn't Citi, more than any other bank, be the first to be banned from speculating with depositor's monies?

 

I have not taken a position because I do not believe this risk is reflected in the stock price fully and the current discount is caused by a partial concern on the risk. Instead I hold BAC which I believe is less reliant on trading revenues and has a superior banking franchise. I would appreciate hearing others comments on this issue. I also worry about Citibank's derivative exposure being so opaque. The owners of JPM, GS and Citi are the same 0.1% of the population. Perhaps the purpose of Citi is to be the patsy if the derivatives ever blow in order to save JPM and GS just like AIG was used in the last crisis. Somebody has to be the fall guy when there are only 4 big US holders of derivatives and there is a losing side to every trade. I don't see any equivalent to AIG. For all I know Barclays or some other British bank could be the fall guy as regulation is so light in London. However I see Citibank being the perfect patsy because everyone knows their track record and expects them to act stupidly once every decade or so. Short term the stock may do well, but aren't tears the likely end result near the peak of a worldwide debt cycle?

 

I am sorry if my cynicism offends current holders of the stock. I like the people who contribute to this board and I hope my views are helpful to some of them so I have expressed thoughts which normal would remain private.

[morningstar]

The difference between BAC and Citi in trading revenue contribution would seem pretty marginal... perhaps 20% of revenue at Citi and 15% at BAC? In terms of absolute trading arm size, activity and total exposures they are even more similar as most of that 20%:15% differential is just due to BAC having more revenue overall. When it comes to trading, BAC and Citi are on Wall Street and in London chasing all the same markets and same revenues, employing the same revolving door of traders and salespeople, so I doubt they are doing anything that differently from each other.

 

I do think the lending operations, especially commercial, are qualitatively different given Citi's emerging markets operations.

[vinod1]

This article was already posted on p. 17.

 

http://www.bloomberg.com/news/2013-09-23/citigroup-drops-after-report-that-bond-trading-will-drop.html

 

I read the research report above and it does not seem to model a large drop in trading revenue discussed in the article. Isn't the reason for the discount the expected drop in trading revenue? I have heard that banks are being required to sell their trading arms. Already they are selling the commodity businesses. The price fixing caused by the traders has to end. We have seen the price fixing in the commodity markets, in the currency markets and the bond markets. Presumably there is price fixing in the equities markets and we all suffer from HFT. Why don't investors expect 100% of the trading revenues to cease instead of only 25% or so mentioned in the article? What trading businesses will the banks be allowed to continue going forward? Further, Citibank has a history of going broke so shouldn't Citi, more than any other bank, be the first to be banned from speculating with depositor's monies?

 

I have not taken a position because I do not believe this risk is reflected in the stock price fully and the current discount is caused by a partial concern on the risk. Instead I hold BAC which I believe is less reliant on trading revenues and has a superior banking franchise. I would appreciate hearing others comments on this issue. I also worry about Citibank's derivative exposure being so opaque. The owners of JPM, GS and Citi are the same 0.1% of the population. Perhaps the purpose of Citi is to be the patsy if the derivatives ever blow in order to save JPM and GS just like AIG was used in the last crisis. Somebody has to be the fall guy when there are only 4 big US holders of derivatives and there is a losing side to every trade. I don't see any equivalent to AIG. For all I know Barclays or some other British bank could be the fall guy as regulation is so light in London. However I see Citibank being the perfect patsy because everyone knows their track record and expects them to act stupidly once every decade or so. Short term the stock may do well, but aren't tears the likely end result near the peak of a worldwide debt cycle?

 

I am sorry if my cynicism offends current holders of the stock. I like the people who contribute to this board and I hope my views are helpful to some of them so I have expressed thoughts which normal would remain private.

 

It is right now a mess. It could end up like AIG at some point in the next 10-20 years if they do not change. Their track record of 4 near deaths in 40 years and being at the center of nearly every major financial scandal indicates it a pretty good bet.

 

Citibank has not really been streamlined since it did not have a good banker as its CEO. It is just an umbrella under which a bunch of acquisitions have been brought together. If you look at Pandit's presentations and what he talks about, it like a state of the union for the world - he would through out numbers for GDP growth for different parts of then world, the 150 cities Citibank operates in, their growth rates, etc. More like a macro hedge fund presentation.

 

We finally have a CEO who seems to at least want to do the right thing. But it is behind BAC which started this journey a while back.

 

As far as trading revenues goes I do not think it is going away any time soon. We need some banks to provide liquidity for bond trading, currencies and derivatives. Since bonds of the same company can have different covenants, maturities, interest rates, etc. This is vastly more complicated than say stocks which are pretty much the same for a given company. Many of the corporate bonds do not even trade every day. So there would a market for this and investment banks are going to be in this business. As more derivatives get standardized the spreads would narrow, but you would always have some non-standard derivatives that need an investment bank. Commodities is something they needlessly expanded into and now are cutting back.

 

That said, I very recently moved a little from BAC into Citi.

 

Vinod

 

 

[fareastwarriors]

Bank Dividends on Up and Up

 

Big Lenders Are Set to Average $1.21 Billion in Payouts Each

 

 

http://online.wsj.com/news/articles/SB10001424052702304026304579449722541729160?mod=WSJ_LatestHeadlines&mg=reno64-wsj

[moody202]

 

We finally have a CEO who seems to at least want to do the right thing. But it is behind BAC which started this journey a while back.

 

Vinod

 

I am curious what impresses you about Corbart, Citi's CEO? I have not been impressed with him so far!

[Rabbitisrich]

There is a big information asymmetry between local executives and the senior executives. Lots of local politics, relationships, and competitive dynamics. Tough to feel comfortable with the typical Pandit type who provides carte blanche authority as long as you meet the numbers. The Banamex issue might not be significant in itself, but it's tough to change that information asymmetry without a Maurice Greenberg type hardass.

[vinod1]

 

I am curious what impresses you about Corbart, Citi's CEO? I have not been impressed with him so far!

 

I have not seen much to form an opinion yet. It is not that I am impressed with Corbart, it is just that he is a vast improvement over Pandit. It is the "George Bush" effect, the bar has been set so low, that anyone else would look good.

 

Vinod

[fareastwarriors]

Volcker Rule Will Cost Banks Up to $4.3 Billion, OCC Says

 

 

http://www.bloomberg.com/news/2014-03-20/volcker-rule-will-cost-banks-up-to-4-3-billion-occ-says.html

[rpadebet]

http://www.bloomberg.com/news/2014-03-26/citigroup-fails-fed-stress-test-as-goldman-bofa-modify-plans.html

 

Interested in seeing what they asked for?

[fareastwarriors]

http://www.bloomberg.com/news/2014-03-26/citigroup-fails-fed-stress-test-as-goldman-bofa-modify-plans.html

 

Interested in seeing what they asked for?

 

 

The central bank identified multiple deficiencies in Citigroup’s planning practices, including areas the Fed had flagged previously. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.

 

...seriously.

[BargainValueHunter]

What, in the real world, does it mean that Citi "failed" this "test"?

 

Does it impact earnings quality or earnings growth?

 

Tangible book value?

 

The balance sheet?

 

What opportunities will Mr. Market give us tomorrow re: Citi?

[ourkid8]

I am getting this information from a live blog:

 

Here’s more on the Citi rejection (apols for the formatting)

 

While Citigroup has made considerable

progress in improving its general risk-management

and control practices over the past several years, its

2014 capital plan reflected a number of deficiencies

in its capital planning practices, including in some areas that had been previously identified by supervisors

as requiring attention, but for which there was

not sufficient improvement. Practices with specific

deficiencies included Citigroup’s ability to project

revenue and losses under a stressful scenario for

material parts of the firm’s global operations, and its

ability to develop scenarios for its internal stress testing

that adequately reflect and stress its full range of

business activities and exposures. Taken in isolation,

each of the deficiencies would not have been deemed

critical enough to warrant an objection, but, when

viewed together, they raise sufficient concerns regarding

the overall reliability of Citigroup’s capital planning

process to warrant an objection to the capital

plan and require a resubmission.

 

 

[racemize]

I wonder how long this resubmission process will take.  Is this a days or weeks or month(s) process?

[rpadebet]

What, in the real world, does it mean that Citi "failed" this "test"?

 

Does it impact earnings quality or earnings growth?

 

Tangible book value?

 

The balance sheet?

 

What opportunities will Mr. Market give us tomorrow re: Citi?

 

Hampers their ability to buy back shares at below TBV. So there is definitely some compounding lost for shareholders.

[ourkid8]

From what I read, I believe they have 30 days...

 

I wonder how long this resubmission process will take.  Is this a days or weeks or month(s) process?

[gfp]

http://www.businesswire.com/news/home/20140326006462/en/Citi-Statement-2014-CCAR-Results#.UzM2oq1dVnQ

[dcollon]

Well, since the stock is down 5% after the close if they keep messing this up it will be more accretive to book when they finally get the buyback authorization.