This Day On The Street
Continue to site
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

Citigroup Pays for Rally With a Downgrade

Citigroup's reported return on common equity was 6.5% during the second quarter, matching the company's first-quarter performance, but declining from 7.7% a year earlier. Hagerman said that "our projected ROTCE through '14 continues to lag peers ([excluding <b>Bank of America </b> <span class=" TICKERFLAT">(<a href="/quote/BAC.html">BAC</a><a class=" arrow" href="/quote/BAC.html"><span class=" tickerChange" id="story_BAC"></span></a>)</span>]) - again challenging the potential for multiple expansion in the new regulatory environment, particularly given the sheer size of C's balance sheet, particularly the potential volatility surrounding the company's market-sensitive revenues."

A continuing theme for Citigroup -- and for most large banks as the industry continues to recover from the credit crisis -- is the release of loan loss reserves. The company's second-quarter earnings were boosted by a $984 million reduction in loan loss reserves, which was half the size of the release a year earlier.

"While there has been a growing sense of optimism surrounding the potential accelerating reserve release from Holdings and improved margins, our sensitivity analysis suggests any near-term reserve release would likely fall short of expectations," Hagerman said, adding that "in 2Q12, the rate of credit quality improvement in [the company's local consumer lending segment] continued to moderate as redefault rates on previously modified mortgages continued to trend higher, asset sales moderated, and the rate of improvement in total delinquencies slowed."

Hagerman said "we are tempering our expectations for Citigroup's total reserve release over the coming quarters to approximately $700-800mm/quarter through 2H13 (from $1.0B/quarter) reflecting a more conservative approach in reserve methodology amid persistent global economic weakness and expectations for some additional loan growth--particularly in large corporate."

Moving back to the seemingly eternal headline risk for large banks and the current "Wall Street as enemy" theme of many politicians during election season, Hagerman said "at the end of the day, policy change in Washington is the game changer for these stocks as opposed to the seemingly unstoppable printing press."

C Chart C data by YCharts

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


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
C $54.76 1.20%
AAPL $118.52 0.19%
FB $105.39 1.10%
GOOG $758.86 2.20%
TSLA $234.86 2.00%


Chart of I:DJI
DOW 17,882.14 +162.22 0.92%
S&P 500 2,089.89 +9.48 0.46%
NASDAQ 5,127.2090 +18.5430 0.36%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs