C - Citibank

[John Hjorth]

Without checking it up - so by recollection - I think WFC announced within the last few days, that they have got FED permission for upping their buyback program with USD 350 M. [And WFC is not [<- still?] allowed to increase business volume?] ¹- So I think the increased quarterly earnings is a good argument for increased buybacks, but perhaps FED for formal reasons may want the 2018Q3 10-Qs filed at SEC before final decisions, ref. Dazel's thoughts shared on that matter in the BAC topic today.

 

Edit:

 

[1] Wrong, ref. Dazel's post #652.

[Dazel]

 

John-WFC was just a board authorization for $18b in buybacks....not fed approval...it’s from their June Fed approval-they only bought$11.4b back last year had plenty left on their company authorization. So just renewed it at a higher rate. That is likely why they had such a large capital return program this year. You drove WFC stock up today though!lol

 

Citi is maxing out its buy backs to the last dollar...keep quiet about them!

[John Hjorth]

Thanks for the correction here, Dazel. I have now edited my post accordingly, - absolutely no need to have false information "hanging" here.

 

And thank you for your high quality posts of today here and in the BAC topic - yes, this "disconnect" between market price and actual performance as reported recently for the big US banks is now simply mind blowing.

[John Hjorth]

In accordance with the C approved CCAR 2018 Capital Plan of June 28^th 2018, C on October 18^th 2018 declared a planned quarterly common stock dividend of USD 0.45 per share.

 

I have been wondering why the board at C has done that, when the stock for prolonged periods now has been trading below book value per share, but I haven't been able to find any satisfactory explanation of this decision, as an alternative to allocate that particular part of the total capital return instead to buybacks.

 

Why not pick up the dimes by basically doing nothing? [-On total company level, it's actually not "just dimes", but millions of USD.]

 

 

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Edit : Fixed [changed] dividend figure from 0.43 to 0.45.

[mcliu]

Hope the stock keeps going lower.  ::)

[StubbleJumper]

In accordance with the C approved CCAR 2018 Capital Plan of June 28^th 2018, C on October 18^th 2018 declared a planned quarterly common stock dividend of USD 0.43 per share.

 

I have been wondering why the board at C has done that, when the stock for prolonged periods now has been trading below book value per share, but I haven't been able to find any satisfactory explanation of this decision, as an alternative to allocate that particular part of the total capital return instead to buybacks.

 

Why not pick up the dimes by basically doing nothing? [-On total company level, it's actually not "just dimes", but millions of USD.]

 

 

I'm not sure that I understand your argument.  C has a capital plan which was approved by regulators.  Are you suggesting that it should have filed an amended capital plan which would envision lower dividends, offset by higher buybacks?  Or are you suggesting that C should have not increased the dividend to the approved amount in the 2018 CCAR, and instead should have retained that capital to be tacked on to the buybacks that will be approved in the 2019 CCAR?

 

I guess my observation about the US banks is that the CCAR is a two-edged sword.  It gives investors a certain level of predictability (which is sometimes nice for me), but it drastically reduces management's flexibility (which, as you seem to be pointing out, sometimes comes at the cost of shareholder value).

 

Am I missing something that is obvious?  It wouldn't be the first time.....

 

 

SJ

 

 

[John Hjorth]

StubbleJumper,

 

I'm suggesting the first alternative mentioned by you in your post above. Cut the Q4 dividend to be paid out in a due course to zero, and frontload the ongoing buybacks with a corresponding amount of USD to the nominal dividend cut - so to say - "now".

 

I don't know if that is [was, - on October 18^th 2018] even - in relation to the approved capital plan - [formally] possible, - my basis is just the phrasing of C approved CCAR 2018 Capital Plan of June 28^th 2018. [Link to it in my last post.] C mentions itself, that both the dividend and the buybacks are subject to the discretion of C at any time.

 

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Perhaps I should just ask C Investor Relations about it.

[StubbleJumper]

StubbleJumper,

 

I'm suggesting the first alternative mentioned by you in your post above. Cut the Q4 dividend to be paid out in a due course to zero, and frontload the ongoing buybacks with a corresponding amount of USD to the nominal dividend cut - so to say - "now".

 

I don't know if that is [was, - on October 18^th 2018] even - in relation to the approved capital plan - [formally] possible, - my basis is just the phrasing of C approved CCAR 2018 Capital Plan of June 28^th 2018. [Link to it in my last post.] C mentions itself, that both the dividend and the buybacks are subject to the discretion of C at any time.

 

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Perhaps I should just ask C Investor Relations about it.

 

 

Yes, that would be better from a shareholders' value perspective.  Not too sure how enthusiastic the banks are about re-opening their capital plan once it's been approved.  I would tend to think that the less often you engage the government, the better!

 

 

SJ

[Spekulatius]

I don’t think that the government / regulator cares if banks spent their excess capital on buybacks or dividends. That’s totally up to management discretion.

[Viking]

I think the regulators prefer buybacks, which are viewed as being easier to reduce when times get bad. We all know how loath companies are to cut a dividend.

[Dazel]

 

 

They will be looking to up their buy backs like B of A did last year and will do again this year with the Fed now. Discussions would be ongoing on their 10 months of profitability. By doing it this way they have no one scrutinizing how much they get in the okay for in capital returns. We discussed this before here but the time for these addition should come soon and allow them to take “more” advantage of these low share prices. Mr. Buffett sees it too....you will likely see him have to show Citi in his 13f next time it’s just dirt cheap and printing cash right now. You will also see him add to BAC and JPM...

Anyone thinking near term recession has to know there is no one more connected to the economy then him.

[Spekulatius]

I think the regulators prefer buybacks, which are viewed as being easier to reduce when times get bad. We all know how loath companies are to cut a dividend.

 

I don’t know. Cutting dividend would be the companies problem, not the regulators.

[Viking]

I think the regulators prefer buybacks, which are viewed as being easier to reduce when times get bad. We all know how loath companies are to cut a dividend.

 

I don’t know. Cutting dividend would be the companies problem, not the regulators.

 

True. However, if a bank stops buying back shares (in an economic downturn) they will get little grief from investors. But if a bank reduces its dividend it will be punished by investors. So banks will not want to reduce their dividend at almost any cost. I think the regulators understand this and as a result would prefer companies to buy back stock over dividend.

[longlake95]

dusted off the Citi file. I owned from Oct 2010 to Nov 17. Seems to be cheap again at 1x tangible book. I like the rising dividend and buyback combo. Can anyone add and color to digital strategy? The were recently voted world's best digital bank. Quite a feat - as they were measured against 300 global banks. Mobile customers up 24% year over year. Maybe the combination of a full court digital press and their significant EM exposure, which may pick-up going forward - there's value there that the market has/or won't recognize.

 

At the end of the day, can Citi get back to earning an ROA >1%? Then it's worth $100....possible?

[John Hjorth]

They will be looking to up their buy backs like B of A did last year and will do again this year with the Fed now. Discussions would be ongoing on their 10 months of profitability. By doing it this way they have no one scrutinizing how much they get in the okay for in capital returns. We discussed this before here but the time for these addition should come soon and allow them to take “more” advantage of these low share prices. Mr. Buffett sees it too....you will likely see him have to show Citi in his 13f next time it’s just dirt cheap and printing cash right now. You will also see him add to BAC and JPM...

Anyone thinking near term recession has to know there is no one more connected to the economy then him.

 

Posted by Viking in the BAC topic in the Investment Ideas forum :

 

John, given BAC was approved for $26 billion in total i am not expecting another one time increase like we saw last year. I gladly take it if it comes. It looks to me like bank shares are going to stay cheap so my guess is BAC will be happy to buy back about $5 billion per quater or close to 2% of shares outstanding. For patient multiyear investors it really is amazing how fast the share count is falling (it is ridiculous at Citi). I think this is a big reason Buffett likes them so much right now.

 

I think the big US banks are really misunderstood. So much about them has changed since 2008/2009. It will be interesting to see how they perform during the next recession. Moynihan has been telegraphing that BAC has been very conservative with its loans etc and that is why its reported growth is not as good as some peers; we will find out if this is true when the next recession hits and loan losses start to climb.

 

Dazel,

 

Since you posted that about a month ago [also ref. the post by Viking quoted above], your thoughts then has been - since then, more or less constantly - on my mind. How do you personally perceive the situation right now?

 

Thank you in advance.

[fareastwarriors]

Citigroup allows hedge fund ValueAct more access

 

https://www.reuters.com/article/us-citigroup-valueact/citigroup-allows-hedge-fund-valueact-more-access-idUSKCN1P51QK

[John Hjorth]

C 2018Q4 & full year Quarterly Earnings Releases and Supplements out today.

 

... A volatile fourth quarter impacted some of our market sensitive businesses, particularly Fixed Income. However, our ICG accrual businesses – Treasury and Trade Solutions, Securities Services, Private Bank and Corporate Lending – continued their strong performance. And in Global Consumer Banking, we had good underlying growth in U.S. Branded Cards and solid performance from our franchise in Mexico where we have been investing. ...

 

That is visible in gross income. To me, basically as expected. Not flamboyant, not bad at all. My eyes are extremely focused on losses, which appear to be in control, without studying the losses in depth.

 

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No more time for reading available today - PAL tax time here in Denmark tomorrow.

[ourkid8]

You forgot to highlight one of the key metrics:

 

REPURCHASED 74 MILLION COMMON SHARES (212 MILLION IN FULL YEAR 2018) which is about 8.5% of the shares outstanding in 2018

 

C 2018Q4 & full year Quarterly Earnings Releases and Supplements out today.

 

... A volatile fourth quarter impacted some of our market sensitive businesses, particularly Fixed Income. However, our ICG accrual businesses – Treasury and Trade Solutions, Securities Services, Private Bank and Corporate Lending – continued their strong performance. And in Global Consumer Banking, we had good underlying growth in U.S. Branded Cards and solid performance from our franchise in Mexico where we have been investing. ...

 

That is visible in gross income. To me, basically as expected. Not flamboyant, not bad at all. My eyes are extremely focused on losses, which appear to be in control, without studying the losses in depth.

 

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No more time for reading available today - PAL tax time here in Denmark tomorrow.

[John Hjorth]

Thanks, ourkid!

 

Yes, it's very important for the investment thesis here. Now we need some kind of overview of how hard C may have been frontloading the share buybacks in this CCAR cycle. 2018Q4 has been a great buyback quarter!

[ourkid8]

2017 Year end shares outstanding: 2,569.90

 

Q1 2018: 2549.9 (Reduced shares outstanding by 0.78%)

Q2 2018: 2516.6 (Reduced shares outstanding by 1.32%)

Q3 2018: 2442.1 (Reduced shares outstanding by 3.1%)

Q4 2018: 2368.5 (Reduced shares outstanding by 3.1%)

 

As you can see, they front loaded their buyback and repurchased 6.2% of the shares outstanding which is awesome! 

 

Thanks, ourkid!

 

Yes, it's very important for the investment thesis here. Now we need some kind of overview of how hard C may have been frontloading the share buybacks in this CCAR cycle. 2018Q4 has been a great buyback quarter!

[John Hjorth]

Thank you for your post & sharing your data here, ourkid,

 

Honestly, I haven't followed it that closely recently. Do you have any quarterly data on capital allocation [in USD B] with regard to share buybacks and dividends, that you're willing to share? [if not, I'll go dig it up, and post it here!]

 

-To me it's quite annoying, that those figures aren't presented in the quarterly earnings presentations - we need the 10-Qs and the 10-Ks for all periods ended to get those numbers. [so, later! - at least for 2018Q4, right?]

[Dazel]

 

 

John,

 

 

I did not see your text on Dec 23rd...my thesis got better as Citi was as cheap as anything I have seen in this cycle. The fact that they are cashed up and ready for massive buy backs is a generational opportunity for Citi shareholders. Their buy back in quarter 4 was at $63...unfortunately I do not think they will be able to complete their buy back this quarter at that level. The world forgot about value for a few years...sometimes things just get too cheap to ignore and that is where Citi is.

 

Dazel

[John Hjorth]

Thank you, Dazel,

 

I couldn't personally phrase it better. I'm a bit less than seven years into this game. For companies I've studied in depth before something like this happened, this tops it all.

 

Fear all over. As of yesterday, no sign of material problems. [That may change, though. I don't when, or from where.]

[ourkid8]

Dazel, I hope you were adding to your position as I could not help myself buying @ $51  :)  Earnings were up, efficiency ratio is coming down, ROE is approaching 10%, RoTCE is over 10%, share count is down significantly however revenue was also slightly down.  Good quarter overall however I was a bit disappointed by branded cards as it was pretty much flat.

 

John,

I did not see your text on Dec 23rd...my thesis got better as Citi was as cheap as anything I have seen in this cycle. The fact that they are cashed up and ready for massive buy backs is a generational opportunity for Citi shareholders. Their buy back in quarter 4 was at $63...unfortunately I do not think they will be able to complete their buy back this quarter at that level. The world forgot about value for a few years...sometimes things just get too cheap to ignore and that is where Citi is.

Dazel

[ourkid8]

Sorry, I do not.  If you can post that data it would be greatly appreciated....

 

Thank you for your post & sharing your data here, ourkid,

 

Honestly, I haven't followed it that closely recently. Do you have any quarterly data on capital allocation [in USD B] with regard to share buybacks and dividends, that you're willing to share? [if not, I'll go dig it up, and post it here!]

 

-To me it's quite annoying, that those figures aren't presented in the quarterly earnings presentations - we need the 10-Qs and the 10-Ks for all periods ended to get those numbers. [so, later! - at least for 2018Q4, right?]