Citigroup reported that during the third quarter, main subsidiary Citicorp derived 42% of its revenue from operations in North America, with 21% of total revenue coming from operations in Asia, another 21% from Latin America, and 16% in Europe, the Middle East and Africa (EMEA). Citicorp's emerging markets operations provide an even greater percentage of earnings, with Latin America and Asia each contributing 22% to third-quarter net income, while EMEA accounted for 15% and North America 40%.
Orenbuch said that in Latin America, Citigroup's string of credit card and consumer acquisitions in 2007 helped the company "establish a local presence" in select markets, and that "despite more recent investments, "the Latin America Consumer business achieved positive operating leverage in 4Q'11 and continues to do so."
The analyst also said that Citi's "Asia Consumer business achieved positive operating leverage in 3Q'11," but that there was "more recent deterioration in operating leverage in 3Q'12 given pressure in Retail Banking in Korea and Japan, which reflects the continued impact of regulatory changes and slower consumer credit growth in those markets."
According to a transcript provided by Thomson Reuters, Citigroup CFO John Gerspach said during the company's third-quarter earnings conference call that the company recorded $20 million in repositioning charges in Korea, "as we began to rationalize our distribution network and refocus our client segmentation," adding that "while these changes were prompted by the new regulatory environment in Korea, they also simplify the business and align our Korea franchise more closely with the urban-based global strategy we employ in most other markets."
Gerspach said that "our overall outlook for Asia remains positive and we currently believe that in this environment, we can grow revenues from our third quarter base at an annual rate of 4% to 6% with a return to positive operating leverage in 2013."
Citigroup's shares closed at $37.00 Tuesday, returning 41% 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 7.9 times the consensus 2013 earnings estimate of $4.64 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.11.
Orenbuch's 12-month price target for Citigroup is $48, implying 30% upside for the shares. the analyst's target represents a 9.4 multiple to his 2013 EPS estimate of $5.10.
Written by Philip van Doorn in Jupiter, Fla.