This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Citigroup's Risk-Reward Ratio Looks Pretty Good

NEW YORK (TheStreet) -- Assessing the risk-reward trade-off for Citigroup (C) continues to be the biggest challenge for the big bank's investors.

Being that Citi has the largest global reach among the major banks, including JPMorgan Chase (JPM), also means that the company is highly levered to the global economy. This is in addition to Citigroup's dependency on the housing recovery.

While these dependencies don't inspire great confidence, Citigroup stands to outperform its peers if/when both housing and the global economy improve. To that end, the first-quarter earnings report, which included a 3% year-over-year increase in revenue -- also 12% higher sequentially -- was a good sign that things are taking a turn for the better.

Granted, the growth in the revenue figure arrived when excluding credit- and debt-valuation adjustments. Still, relative to expectations, and the fact that this was Citigroup's first full quarter under new CEO Michael Corbat, there's plenty cause for optimism.

What's more, core revenue rose 2% year over year and 13% sequentially. This is despite negative results in transaction services and a lackluster showing in Global Consumer Banking, which arrived flat. Citigroup also posted sluggish net interest income, which arrived 1% lower than last year and down 2% sequentially.


It's worth noting here, though, that while these numbers seem uninspiring, not much was expected in terms of performance. If you recall, when Citigroup reported on its fourth quarter, management had essentially thrown everything out, including the kitchen sink. In fact, during the fourth-quarter announcement, Corbat uttered the following words:

"Our bottom line earnings reflect an environment that remains challenging with businesses working through issues like spread compression and regulatory changes as well as the costs of putting legacy issues behind us."

These words, specifically, "putting legacy issues behind us," were a reminder to investors that although growth is still a priority, Corbat's focus was also on fixing Citigroup's nagging fundamental issues, which includes stabilizing U.S. banking, while shoring up the global brand.

There are also pressing concerns such as poor loan growth, a market in which Citigroup has been losing share to the likes of Wells Fargo (WFC). Then again, Citigroup actually beat estimates on its pre-provision net revenue (PPNR), while Wells Fargo missed.

Along similar lines, when compared with JPMorgan's net interest margin (NIM), which declined almost a quarter-point year over year, Citi's NIM performance, which declined just 4 basis points year over year and by 1 basis point sequentially, looked retty solid. Relative to expectations, the first-quarter report was actually pretty good.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,122.01 +15.31 0.09%
S&P 500 2,000.12 +0.10 0.00%
NASDAQ 4,569.6210 -1.0160 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs