Reasons to join Citigroup, revisited

26 October 2010

2 minute read

While Bank of America's stock price has been taking a bath, Citigroup's has been having a buffet party. Yesterday, it rose 3% on opening.

The immediate cause for the excitement appears to have been a positive note from analysts at Goldman Sachs, but things are looking up a little bit for Citigroup anyhow.

In the third quarter, its 'clean revenues' (excluding own debt) were up 38% q-o-q in IBD and 70% in equities according to analysts at Morgan Stanley. This compared to 13% and 22% across the market as a whole. Only FICC was a bit of a letdown (3% quarterly decline while market was up 3%).

Don't let FICC, or Mike Mayo, or Charlie Gasparino discourage you, Citi is looking hotter than previously. Here's why.

1) Its stock could rise 30%, or more

Yesterday Citi's stock closed at $4.21. Goldman thinks the target price is $5.50. Dick Bove, who has been pro-City all his life, thinks the stock will double over the next two years.

2) It's less exposed to mortgage backed securities than Bank of America

Bank of America's recent woes stem from concerns about its foreclosure process and likely mortgage losses. By comparison, Goldman analysts point out Citi's in far less trouble. They estimate that BofA has $910bn of private label (non GSE) US mortgage exposure, compared to only around $95bn for Citi.

3) The US government should get rid of its stake soon

The US government was supposed to extricate itself from Citigroup this year. This hasn't quite happened, but it will - soon.

Goldman analysts estimate that the disposal of the government's remaining 10% stake should be complete by early Q211.

4) Big emerging markets exposure

Citigroup derives around 40% of its revenues from emerging markets. And emerging markets are more profitable than 'mature markets.' Across all business areas, Goldman analysts expect emerging markets businesses to generate ROE of 35% across the cycle. In EMEA, they expect 17%.

5) It's like HSBC

Finally, Citi is starting to look a lot like HSBC. And HSBC is seen as a fine example of a global and diversified bank. See the charts below.

Source: Goldman Sachs

AUTHORSarah Butcher

Global Editor

Ne
New @ Citi
27 October 2010
@Bill
I wouldn't say it's easy to shine because everybody else is incompetent. I would, however, say it's easy to shine because everybody else has been here so long they're forgotten how to try anything new or different.
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To
Tom
27 October 2010
Buy Citi now! It's going up up and up! i've just bought 10000 shares..
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Da
Davros
27 October 2010
Not wrong about the emerging markets. They have people everywhere and really strong businesses in odd places, usually because they opened up and forgot., letting the locals get on with it. Like the lost Barclays tribes in Zimbabwe.
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ex
ex citi
26 October 2010
Insert your comment here (under 1200 characters)...but there are management issues - the firm as a whole simply doesn't pull together. nothing to do with the competence of managers. noboody's incentivized to break the silos.
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IB
IB Citi
26 October 2010
ouch Bill. I think you should see a doctor about such animosity!
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