10 Most Profitable Banks Trading Below Book Value

8. Citigroup

Shares of Citigroup (C) closed at $42.16 Thursday, returning 7% in January, following a 51% gain during 2012. Last year's performance reversed a 44% slide in 2011. The shares at the end of January were down 11% since the end of 2010.

Citi's shares trade for 0.8 times tangible book value, and for 8.1 times the consensus 2014 EPS estimate of $5.18. That is, by far, the lowest forward P/E for any of the stocks discussed here. The consensus 2013 EPS estimate is $4.60.

The company's 2012 ROA was 0.57%.

Mosby says that "Citigroup is trading below tangible book value because of their distressed assets within Citi Holdings." When Citi "can correct those issues and get full credit for their balance sheet, you can start to expect the stock to close the gap to tangible book value," he says.

Citi Holdings is the subsidiary into which the company placed troubled and non-core assets as part of former CEO Vikram Pandit's "good bank/bad bank" strategy for right-sizing the company's balance sheet. Citigroup's current CEO Michael Corbat, who was elevated to that position in October, previously headed Citi Holdings, and has indicated his desire to accelerate the wind-down.

Citi Holdings had $156 billion in assets as of Dec. 31, declining from $269 billion at the end of 2011 and $359 billion at the end of 2010.

Corbat quickly made his mark, when Citigroup in early December announced plans to lower its expenses by $900 million in 2013, with savings expected to increase to $1.1 billion in 2014, with annual revenues expected to decline by less than $300 million. The measures included 11,000 employee layoffs and the closure of 84 branches.

After Citigroup announced its fourth-quarter earnings -- including a $1 billion charge for expenses tied mainly to the layoffs -- Mosby said in a report on Jan. 18 that the "results highlighted a further reduction in potential future losses from Citi Holdings and improving core profitability."

The analyst estimated that excluding Citi Holdings, main Citigroup subsidiary Citicorp's return on tangible common equity was between 13% and 14%. According to Mosby, "this level of core profitability should eventually warrant a 20% to 30% premium to tangible book value, not a discount."

Mosby's price target for Citigroup's shares is $55.00.

C data by YCharts

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