Free Annual Reports
Citigroup’s Tepid Recovery
Money center banking giant Citigroup (NYSE:C) disappointed investors with tepid fourth quarter results on January 17. The stock fell in sympathy and performance remains weak, especially compared to key rivals that look to be much further along the path to recovery since the credit crisis.
However, the stock continues to trade at very low multiples, and therefore has considerable upside potential should Citigroup's own recovery continue to progress.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Full Year Recap
Total reported revenues fell 9.5% to $78.4 billion, but most of the decline stemmed from Citi Holdings, a segment that Citigroup created following the credit crisis to theoretically separate problem loans and businesses from its core operations.
Citi Holdings revenues declined 33.1% to $12.9 billion, or 16.5% of total revenues as total assets fell 25% to $269 billion. The core Citicorp saw a much more modest top-line decline of 1.5% to account for the remaining revenues and $1.3 trillion of total assets.
Total reported net income advanced 6.4% to $11.3 billion, or $3.69 per share. Again, Citi Holdings was the laggard and logged a loss of $2.4 billion, though this was down from $4.3 billion in 2010. Excluding this asset base, Citicorp profits were $14.4 billion, down only 1.8% from 2010.
Citigroup's Outlook
For 2012, analysts currently project a modest top line decline of 0.4%, total revenues of almost $80 billion and earnings of $4.13 per share.
A Tepid Recovery
Citigroup's stock traded down after the earnings release as fourth-quarter profits came in below analyst estimates. For the year, expenses also grew 6.9% to $50.7 billion, even though revenues declined on slightly negative trends in the domestic banking business and a significant drop in investment banking fees earned.
Additionally, the bank is seeing a slower recovery compared to rivals that include JPMorgan Chase (NYSE:JPM), U.S. Bancorp (NYSE:USB), as well as regional rivals such as Fifth Third Bancorp (Nasdaq:FITB) and PNC Financial Services (NYSE:PNC)
On a more positive note, net credit losses continued to decline, falling to $20 billion versus $30.9 billion in 2010. Additionally, the allowance for loan losses declined to $30.1 billion. And from an investment perspective, the stock continues to trade at a significant discount to book value.
Citigroup ended the year with a total book value of $60.56 per share, which was up 8% from last year. Tangible book value advanced 12% to $49.50 per share. The stock is currently trading below $30 per share.
The Bottom Line
In the earnings press release, management spoke of being "increasingly focused on driving earnings" and "beginning to return capital to our shareholders this year." For the stock to start trading closer to tangible book, and eventually even total book value, investors will need something to make them believe Citigroup is capable of steadily increasing earnings.
This may still be some time away as Citi Holdings will likely continue to be a drag on the core operations. However, an increase in share buybacks and dividends could be a meaningful driver of improved sentiment and an indication that a recovery from the depths of the credit crisis is still in process.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.
However, the stock continues to trade at very low multiples, and therefore has considerable upside potential should Citigroup's own recovery continue to progress.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Full Year Recap
Total reported revenues fell 9.5% to $78.4 billion, but most of the decline stemmed from Citi Holdings, a segment that Citigroup created following the credit crisis to theoretically separate problem loans and businesses from its core operations.
Citi Holdings revenues declined 33.1% to $12.9 billion, or 16.5% of total revenues as total assets fell 25% to $269 billion. The core Citicorp saw a much more modest top-line decline of 1.5% to account for the remaining revenues and $1.3 trillion of total assets.
Total reported net income advanced 6.4% to $11.3 billion, or $3.69 per share. Again, Citi Holdings was the laggard and logged a loss of $2.4 billion, though this was down from $4.3 billion in 2010. Excluding this asset base, Citicorp profits were $14.4 billion, down only 1.8% from 2010.
Citigroup's Outlook
For 2012, analysts currently project a modest top line decline of 0.4%, total revenues of almost $80 billion and earnings of $4.13 per share.
Citigroup's stock traded down after the earnings release as fourth-quarter profits came in below analyst estimates. For the year, expenses also grew 6.9% to $50.7 billion, even though revenues declined on slightly negative trends in the domestic banking business and a significant drop in investment banking fees earned.
Additionally, the bank is seeing a slower recovery compared to rivals that include JPMorgan Chase (NYSE:JPM), U.S. Bancorp (NYSE:USB), as well as regional rivals such as Fifth Third Bancorp (Nasdaq:FITB) and PNC Financial Services (NYSE:PNC)
On a more positive note, net credit losses continued to decline, falling to $20 billion versus $30.9 billion in 2010. Additionally, the allowance for loan losses declined to $30.1 billion. And from an investment perspective, the stock continues to trade at a significant discount to book value.
Citigroup ended the year with a total book value of $60.56 per share, which was up 8% from last year. Tangible book value advanced 12% to $49.50 per share. The stock is currently trading below $30 per share.
The Bottom Line
In the earnings press release, management spoke of being "increasingly focused on driving earnings" and "beginning to return capital to our shareholders this year." For the stock to start trading closer to tangible book, and eventually even total book value, investors will need something to make them believe Citigroup is capable of steadily increasing earnings.
This may still be some time away as Citi Holdings will likely continue to be a drag on the core operations. However, an increase in share buybacks and dividends could be a meaningful driver of improved sentiment and an indication that a recovery from the depths of the credit crisis is still in process.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
Free Annual Reports
