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Citigroup: Cut to Profit Winner

The KBW Bank Index (I:BKX) rose 2% to close at 48.64, with all but three of the 24 index components rising for the session.

Corbat Acts to Right-size Citi


Citigroup announced a series of moves meant to lower its annual expenses by $900 million in 2013, with total expense savings increasing to $1.1 billion in 2014. The company expects its annual revenue to decline by only $300 million as a result of the closure of 84 branch offices, including 44 in the United States, as offices in Brazil, Hong Kong, Hungary, and South Korea.

The company said it would trim its work force by 11,000, including 6,200 in its Global Consumer Banking segment, 1,900 in the Institutional Clients Group, 2,300 Operations & Technology positions, outside those included in the GCB and ICG cuts, and 350 layoffs in Citi Holdings.

Citi Holdings is the company's subsidiary holding noncore assets that are running off, as part of former CEO Vikram Pandit's "good bank/bad bank" strategy. Current CEO Michael Corbat ran Citi holdings for a time under Pandit's leadership, before becoming the company's CEO for Europe, the Middle East and Africa, before replacing Pandit as Citigroup CEO in October.

Credit Agricole analyst Mike Mayo -- who has often been a critic of Citigroup over the past several years -- said in a report after Citi's announcement that "the new CEO took a serious playbook off the shelf and started with moves in his old region of EMEA (three of five exit countries)."

Mayo said that "the moves today create a tone that the new CEO will not take half measures," but that his firm was viewing Citigroup's expense cuts "as an initial 'tremor' and that an 'earthquake' or more radical restructuring is needed before the April 16th annual meeting to satisfy activists."

The analyst rates Citigroup "Outperform," with a 12-month price target of $43.00.

Citigroup's shares have now returned 39% year-to-date, following a 44% decline during 2011.

The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for eight times the consensus 2013 EPS estimate of $4.64, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.03.
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