C - Citibank

[Guest Schwab711]

Forget WB and what he chose to invest in (WFC and USB are different, long-term high-quality banks); he likes the BAC model better than Citi's - possibly because he wants to stay invested in America?

 

An investment in Citi is a belief that emerging markets (including FX effects) will grow faster than the US. The branch network throughout the world is only rivaled by HSBC but Citi does it better than anyone. Citi's IB is top 3 (JPM/GS for 1/2 or 2/1 with Citi coming in at #3 imo), their commercial lending book is of excellent quality, and Banamex is a high-growth/high-quality bank which again depends on your belief in Mexico's future growth. Also, Citi is the most likely American bank to grow in China (maybe JPM could compete?) given Citi's ties to Chinese government officials along with important government officials from nearly every country.

 

I think BAC will likely do better in the short-term because it has more American assets but I don't think board members should be dissuaded from investing in Citi just because WB passed. Based on the smaller-cap names being mentioned on the board, it seems as if Citi better fits a lot of board members 'view' on how the future will unfold.

[CorpRaider]

I like BAML better because of Merril.  I feel like BAM should use the ML brand exclusively outside the U.S.

[fareastwarriors]

Citigroup Ordered to Turn Over Banamex Records

 

Court Rules for Shareholder Oklahoma Firefighters Pension and Retirement System in Wake of Loan-Fraud Scandal at Mexican Unit

 

 

 

http://online.wsj.com/articles/court-orders-citigroup-to-turn-over-banamex-records-1412188251?mod=WSJ_hp_LEFTWhatsNewsCollection

[fareastwarriors]

Subprime Lender Springleaf Looks Into Purchase of Citigroup's OneMain

 

Springleaf Has Held Discussions With Banks About Financing a Deal For Rival

 

 

http://online.wsj.com/articles/subprime-lender-springleaf-looks-into-purchase-of-citigroups-onemain-1412262195?mod=WSJ_hps_sections_markets

[fareastwarriors]

Citigroup Says Banamex CEO Resigns After ‘Challenges’

 

 

 

http://www.bloomberg.com/news/2014-10-03/citigroup-s-banamex-ceo-arrigunaga-resigns-torres-cantu-named.html

[fareastwarriors]

Citigroup’s OneMain Financial Files To Go Public

 

OneMain Financial is Citi’s Subprime-Lending Unit

 

 

 

http://online.wsj.com/articles/citigroups-onemain-financial-files-to-go-public-1412775531?mod=WSJ_hp_LEFTWhatsNewsCollection

[fareastwarriors]

Another Scandal Hits Citigroup’s Moneymaking Mexican Division

 

 

 

 

http://dealbook.nytimes.com/2014/10/14/citigroup-says-earnings-rise-13-as-it-discloses-a-second-inquiry-in-mexico/?src=me

[fareastwarriors]

Banamex Overhauls Management

 

 

 

http://online.wsj.com/articles/banamex-overhauls-management-1414367296?mod=WSJ_hp_LEFTWhatsNewsCollection

[fareastwarriors]

 

Citigroup ‘like free candy at these prices’

 

 

http://www.cnbc.com/id/102141424?trknav=homestack:topnews:1

 

 

Citigroup stock, which took a hit after the company adjusted its third-quarter earnings, still looks on track to double in the next four years, CLSA bank analyst Mike Mayo said Friday.

[fareastwarriors]

Citigroup Expects $2.7 Billion in Fourth-Quarter Legal Expenses

 

Bank CEO Corbat Gave New Figures for Projected Expenses At Conference Tuesday

 

http://www.wsj.com/articles/citigroup-expects-2-7-billion-in-fourth-quarter-legal-expenses-1418139019?mod=WSJ_hp_LEFTWhatsNewsCollection

[fareastwarriors]

Citigroup’s Roaring Revival on Wall Street

 

 

http://www.nytimes.com/2015/03/11/business/dealbook/citigroups-roaring-revival-on-wall-street.html?ref=dealbook&_r=0

[dcollon]

Citi Announces 2015 Planned Capital Actions

Wednesday, March 11, 2015

 

The Federal Reserve Board today advised Citi that it has no objection to the planned capital actions requested by Citi as part of the 2015 Comprehensive Capital Analysis and Review (CCAR).

 

The planned capital actions include an increase of Citi’s quarterly common stock dividend to $0.05 per share (subject to quarterly approval by Citi’s Board of Directors), as well as a common stock repurchase program of up to $7.8 billion during the five quarters starting in the second quarter of 2015.

 

Michael Corbat, Citi’s Chief Executive Officer, said: “We are committed to delivering meaningful returns of capital to our shareholders and today’s decision will allow us to begin doing so. We have worked very hard over the last twelve months to further strengthen our capital planning process, with the goal of embedding it into the way we run the firm. We are committed to building on the progress we have made and ensuring that we have a sustainable process that serves the financial system as well as our shareholders. We want Citi to be an indisputably safe and sound institution and will do everything in our power to make that the case, year in and year out.”

 

Repurchases by Citi under the common stock repurchase program may be effected from time to time through open market purchases, trading plans established in accordance with U.S. Securities and Exchange Commission rules, or other means, depending on satisfactory market conditions, applicable legal requirements and other factors. The common stock repurchase program does not obligate Citi to repurchase any particular amount of common stock and it may be suspended at any time at Citi’s discretion.

[orthopa]

Looks like adjustments will finally start on the A warrants for anyone besides myself holding them. Stock still needs to increase ~100% from here for them to be worth anything at expiration.

 

Hard to believe it would take this long since issuance for the div adjustment to start.

[CorpRaider]

I believe the post reverse split adjustment hurdle is $.10.  Sorry for necro-post; was just going through and updating strikes for dividend adjustments and noticed no adjustments for C and so on an so forth.  I think I might need to "diversify" some of the First Bostonian management risk of my BAC-WTA position and am therefore considering adding some WFC, JPM or C warrants.

[Shawn]

I'm thinking of investing in the Citigroup class A and/or B warrants. I wanted to ask for some criticisms and risks as to why I should NOT invest in them, or just some general opinions about Citi. Truth be told it does seem steep that in the next 3 years Citi doubles or triples but one could make a similar case for Bank of America too.

 

My reason FOR wanting to invest in them is the right to buy Citi shares at a discount and sell them for a profit. While I do not think Citi is a great bank (compared to WFC or BAC), I do believe that the warrants present a terrific opportunity to profit from past perils.

 

I currently own the warrants of BAC (class A warrants) and AIG at present time.

[racemize]

I'm thinking of investing in the Citigroup class A and/or B warrants. I wanted to ask for some criticisms and risks as to why I should NOT invest in them, or just some general opinions about Citi. Truth be told it does seem steep that in the next 3 years Citi doubles or triples but one could make a similar case for Bank of America too.

 

My reason FOR wanting to invest in them is the right to buy Citi shares at a discount and sell them for a profit. While I do not think Citi is a great bank (compared to WFC or BAC), I do believe that the warrants present a terrific opportunity to profit from past perils.

 

I currently own the warrants of BAC (class A warrants) and AIG at present time.

 

Personally, I think there is a strong chance that both the C warrants and the BAC B warrants expire worthless, which is enough for me to avoid them entirely.  If it does get to the strike price, they start making insane amounts of money though.

[fareastwarriors]

Citigroup’s ‘Bad Bank’ a Surprise Success

 

Don’t look now, but Citi Holdings, the “bad bank” Citigroup created to dispose of unwanted assets, has logged four profitable quarters in a row

 

 

http://www.wsj.com/articles/citigroups-bad-bank-isnt-so-bad-anymore-1439417026

[fareastwarriors]

Inside the Money Laundering Scheme That Citi Overlooked for Years

 

http://www.bloomberg.com/news/articles/2015-11-20/inside-the-money-laundering-scheme-that-citi-overlooked-for-years

[fareastwarriors]

Citigroup Plans at Least 2,000 Job Cuts Next Month

 

http://www.bloomberg.com/news/articles/2015-12-18/citigroup-said-to-plan-at-least-2-000-job-cuts-next-month

[fareastwarriors]

The New Kid on the Stock-Trading Block: Citigroup

 

Bank is pushing to become more of a force in equities and related derivatives

 

 

http://www.wsj.com/articles/the-new-kid-on-the-stock-trading-block-citigroup-1452421803

[Viking]

Citi just released earnings which came in slightly above expectations. More importantly, on the conference call they inferred that they would be asking for a very large capital return as part of CCAR; I am hoping for something in the $15 billion per year range. During Q1 Citi was able to grow regulatory capital by $6 billion, including utilizing $1.6 billion of their deferred tax asset. We will find out in June. Citi was the only US global bank to have their Living Will passed by regulators; hopefully this is further proof that Citi is getting on the same page as regulators and this supports their capital request plans. With the company trading at .72 x TBV the shares are crazy cheap. I think The CCAR announcement in June could be a major catalyst for the shares.

 

IP Banking Research on Seeking Alpha has a series of articles on C that are very well written (if anyone is interested in learning more).

 

 

[fareastwarriors]

The Alchemist Who Turned Toxic Assets Into Gold at Citigroup

 

Mark Tsesarsky, who fled the Soviet Union with $90, has made the bank billions by doubling down on the same subprime mortgage bonds that nearly sank the global financial system.

 

http://www.bloomberg.com/news/articles/2016-06-07/how-citigroup-trader-mark-tsesarsky-turned-toxic-assets-into-gold

[Viking]

C today was approved to return about $10.4 billion to shareholders over the next 4 quarters ($8.6b in buybacks and div of $0.16 per quarter = 1.8b). Over the last 4 quarters they retuned $6.8b ($6.2 + $0.05 per q = $600 mill). Capital return increased 54%.

 

Total capital return was at high end of $8-10 bill expected by analysts. Dividend increase from $0.05 to $0.16 per quarter was a second positive surprise (versus analyst expectations).

 

C shares outstanding have finished each calendar year as follows:

2013 = 3.029 bill

2014 = 3.024

2015 = 2.953  -2.3%

Est 2016 = 2.815  - 4.7%  (Q2 -30; Q3 -45, Q4 -45)

2017 shares will likely fall about 6% to 2,650

 

Even with the announced capital return TBV will continue to grow. With the top number (TBV) getting bigger and the bottom shrinking (shares outstanding) TBV per share will grow nicely.

 

The complicating factor with C is the DTA (hidden in TBV). As DTA is utilized and shrinks in size and is converted into 'regulatory capital' then C TBV will be easier to understand and value. This conversion will take the next decade.

 

Today, C has $52/ share in regulatory capital. It also has $30 billion in DTA not included in regulatory capital but with value to the firm (as it will be used to save taxes over the next decade).

 

[fareastwarriors]

Citi’s Consumer Business in China: Years of Red Ink

 

Unit’s losses show difficulties for foreign lenders in exploiting the once-heralded opening of the huge market

 

http://www.wsj.com/articles/citis-consumer-business-in-china-nine-years-of-red-ink-1468162180

[JPerez]

I think that all big US banks are undervalued at the moment and specially Citigroup.

I realize that JPM and WFC are better quality businesses but I think that the share price of citigroup more than discount this.

I wanted to write a post here to see if people find flaws in my reasoning, it seems quite obvious to me but the market doesnt agree so I wanted to check if other people agrees with the market.

I will make a distinction here between US money centre banks and European ones because I think that the European ones are still undercapitalized. Although their core tier 1 numbers are high their RWA as a percentage of assets is very small compare with US banks. Part of it is because of different business models but I dont think that can explain the big difference in RWA density.

Also US banks have shown in the last few years that they can produce big amounts of regulatory capital quarter after quarter while the European ones seem to produce it at much smaller rates even as a % of their net income.

I like to think of the regulatory capital produced in a given year as the equivalent of cash flow for non-bank businesses.

I think, and here is where probably many people will disagree, that US banks have become businesses similar to regulated utilities after the financial crisis. (Except the banks being cyclical businesses unlike utilities)

The new regulations and higher capital in their balance sheets havemade them much more safer in 2 ways:

-The higher capital buffers reduce the chances of a capital raise during a crisis.

-The regulations have reduced the risk appetite of banks and have reduced the potential losses during a crisis.

Of course this has reduced the ROEs of those businesses greatly by having a higher denominator and by reducing the profitability of the businesses.

Because of this I believe that the cost of capital shouldn't be the same as it was before the crisis.

The market thinks that a 10% cost of capital should be applied a rule of thumb to banks. The market does not give any value to the extra capital and the superior risk controls.

It is clear that the market hates banks at the moment and specially citigroup. It is hard to go to any comments on citigroup article in seekingalpha and not see comments about the dilution during the crisis, the contrasplit, people wishing that it fails because it was rescued, people wondering when will it blow up again because it blows up in every crisis, etc.

I think part of it is fair, the history of the stock is not great but stock investing is looking forward not backwards and I think citigroup has to improve but it has come a long way and it is a completely different bank than it was.

I think citigroup probably needs to go through a recession with minimal or no losses to show the market that it can do it, in the meanwhile the stock will keep getting sold off every time that there is a chance of a recession and the valuation will be below its potential.

My back of the envelope valuation of Citigroup by the end of 2018 is based on an 8% cost of capital, (12.5 P/E ratio)

I believe they will earn close to 15B net income this year and I will use this number for valuation purposes (they earn 17 b last year and i think they should earn more than 15B going forward if interest rates go higher as they should)

Multiplying the 15B by 12.5 gives us 180B for the equity. I would add 15 B as net present value for the 30 B DTAs.

That would give us 195B divided by 2.5 B shares by the end of 2018: 78$ per share.

With a 10% cost of equity the same calculation would give us 66$ per share

Any major flaws in this valuation?