This Day On The Street
Continue to site right-arrow
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 Touted As Housing Rebound Play: Street Whispers

Stocks in this article: C BAC WFC JPM XHB

NEW YORK ( TheStreet)-- Citigroup (C) is generally viewed as having the least exposure to troubled home loan among the largest four U.S. banks, but a pair of recent analyst reports argue the bank may still be an effective way to bet on a U.S. housing rebound.

Both Deutsche Bank analyst Matt O'Connor and Oppenheimer & Co. analyst Chris Kotowski note in recent reports that they have received lots of questions from investors about how to invest in a U.S. housing rebound, and both see good reasons to look at Citigroup in this context.

Both analysts point out that stocks tied to housing have already had a strong run. In a note published Monday, Kotowski observes the 29% rise in home builder ETF XHB (XHB) over the past three months, as well as a 32% rise in lumber company Weyerhauser (WY).

Bank of America (BAC) is usually viewed as the best way to play a housing rebound, which is a big reason its shares are up 67% year to date.

O'Connor estimates buying back problem mortgages will eventually cost Bank of America $32.19 billion, compared to $6.75 billion for JPMorgan Chase (JPM), $6.55 billion for Wells Fargo (WFC).

Contrasted with those numbers, O'Connor $3.49 billion cost estimate for Citigroup's mortgage clean up looks relatively modest.

However, the analyst notes these expenses are just one of four factors to be considered when determining whether a bank will benefit from a housing recovery. Citigroup would benefit in other ways, for example through its capital markets business.

"If housing improves meaningfully, capital markets will likely be better than expected given the general boost to sentiment (and we would argue a likely pick-up in volumes and asset levels)," O'Connor writes, adding that Citi, Bank of America, JPMorgan, Goldman Sachs (GS)and Morgan Stanley (MS) are "most leveraged" to a capital markets recovery, while adding "of these, Citigroup is our top pick."

While Citigroup had just the fifth-largest U.S. mortgage origination business in the second quarter, with 3.8% market share, it nonetheless faces a great deal of credit uncertainty related to the mortgage book within its Citi Holdings unit, O'Connor contends.

Citigroup wrote off 2.1% of its loans in the second quarter, the largest of 17 banks followed by O'Connor. He estimates it will write off 1.8% of its loans in 2013, again the biggest percentage in the group. However, the analyst argues that while "meaningful credit improvement" for Citi "may take a few quarters, if housing continues to recover there's a lot of leverage" to Citigroup's earnings and share price. Indeed, assuming Citigroup's existing reserves are used for mortgage losses it would have added 75 cents per share to second quarter earnings and 35 cents to O'Connor's 2013 estimate of $4.64 per share.

1 of 2

Select the service that is right for you!

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 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • 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