This Day On The Street
Continue to site
ADVERTISEMENT
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's Rally May Have a Real Estate Spin: Street Whispers

NEW YORK ( TheStreet) -- Citigroup (C - Get Report) shares have handily outperformed those of the other U.S. megabanks in recent weeks, and while there are a few possible explanations, one that may not receive enough attention is the possibility it could spin off its troubled North American real estate assets.

Goldman Sachs analyst Richard Ramsden floated the idea of a real estate spin off in a Sept. 10 report, devoting some five pages to the proposal. The analyst argued that spinning off the $100 billion portfolio would bring losses in Citigroup's Citi Holdings unit down to $1 billlion from $4 billion, while reducing the regulatory capital requirement by more than half.

In the same report, Ramsden argued Citigroup could write down its $40 billion of its $51 billion deferred tax asset (DTA), bringing tangible book value down to $38 from $52 but upping return on tangible common equity to 11% from 8%.

In his report, Ramsden reiterated a "buy" rating on Citigroup and argued the shares could be worth $51-compared to $32.07 at the time of Ramsden's writing. Since then, they have gained $4.25, or 13.6%--outpacing all the megabanks--while the S&P 500 has lost 4.03%

Certainly there are other possible explanations for Citigroup's surge over that time period. Many investors appear to have been cheered by the bank's third quarter earnings and by the resignation of CEO Vikram Pandit. Still, those occurred in mid-October, and Citigroup's gain over that shorter time period is less impressive.

If the notion of the real estate spin off and the DTA write down are indeed behind the rally, that could be a problem for Citi shareholders if the bank's new chief executive, Michael Corbat, decides those moves don't make sense.

Indeed, the rise in Citigroup shares since mid-September has been accompanied by a sharp drop in shares of Wells Fargo (WFC - Get Report), which Ramsden's team removed from its "conviction list," in the same Sept. 10 report touting the potential for the real estate spin off and DTA write down by Citi. Goldman left a buy rating on Wells, but the shares are down 7.5% over the same time period that Citi has risen 13.6%.

Wells is still substantially more expensive than Citigroup by most widely accepted measures, but at some point investors will begin to wonder how much they want to pay for a checkered company with a brand new CEO when a stable, proven player like Wells keeps getting cheaper.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
C $54.50 -1.05%
WFC $56.25 -0.34%
AAPL $125.69 -0.25%
FB $87.22 -0.38%
GOOG $525.02 0.41%

Markets

DOW 17,776.91 +93.33 0.53%
S&P 500 2,081.34 +12.58 0.61%
NASDAQ 4,997.4590 +5.5190 0.11%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs