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10 Most Profitable Banks Trading Below Book Value


4. Citigroup
Shares of Citigroup (C) closed at $34.06 Monday, returning 30% year-to-date, after a decline of 44% during 2011.

The shares trade for 0.7 times their reported June 30 tangible book value of $51.81, and for six times the consensus 2013 EPS estimate of $5.65. The consensus 2012 EPS estimate is $5.06.

For the 12-month period ended June 30, Citi's ROA was 0.55%, and its ROE was 5.78%.

Citigroup announced on Sept. 11 that it would record a pretax write-down in the third quarter of $4.7 billion -- $2.9 billion after tax -- after the company and Morgan Stanley agreed upon a valuation for the Morgan Stanley Smith Barney joint venture, which was formed in June 2009.

Citigroup in June 2009 sold Smith Barney to the joint venture, booking a gain of $11.1 billion, or $6.7 billion after taxes. Morgan Stanley had the option of purchasing Citigroup's minority stake in the joint venture over a three year period, beginning this year.

Morgan Stanley in June informed Citigroup that it would purchase an additional 14% stake in the joint venture from Citigroup, after which the companies took over three months to arrive at the joint venture's valuation. The two companies announced that week that Morgan Stanley would buy Citigroup's entire stake, taking another 15% by June 1, 2013, and the remainder by June 1, 2015.

Kotowski on Sunday called Citigroup "the hands down winner in terms of attractiveness" on the basis of a valuation to tangible book value "at only 27% of its historical average." The analyst said that "at least "$100 billion of the $191 billion of assets in Citi Holdings are home mortgages," along with $35 billion in Citi's runoff subsidiary of which "a decent chunk is also housing related," which is "is the single biggest reason for the largest discount to tangible book value in the group is the area that the market is telling us is improving most rapidly."

This makes Citi, ironically, a housing recovery play.

Kotowski rates Citigroup "Outperform," with s $53 price target, implying 56% upside for the shares, from Monday's close.

C Chart C data by YCharts

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

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