This Day On The Street
Continue to site right-arrow
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
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Citigroup Investors Have to Be Patient, KBW Says

Stocks in this article: C

NEW YORK ( TheStreet) -- Citigroup (C) shares offer the best restructuring opportunity among large-cap financials over the next three to five years, KBW analysts said in a report released Tuesday.

The analysts said the new management led by Chairman Michael O'Neill and CEO Michael Corbat will allocate capital more efficiently across businesses, boosting returns to shareholders.

But "investors will need to be patient to reap rewards" on the shares, the analysts, headed by Fred Cannon, said. "The restructuring of a $1.8 trillion global bank takes time."

Cannon is taking over coverage of Citigroup from David Konrad following KBW's merger with Stifel Financial in February. He has a price target of $55 on the stock.

Shares of Citigroup have gained 33% over one year as housing has recovered, easing balance-sheet concerns. Hopes that the bank will return more capital and resize its business under Mike Corbat, who replaced Vikram Pandit in late 2012, have also lifted the stock.

On the former, however, investors may need to tone down their expectations. The analysts believe Citigroup's management will likely play it safe this year when they make their capital return request to the Federal Reserve this year after 2012's embarrassing rejection.

In recent presentations to investors, management has indicated that it is mostly focused on ensuring the bank passed the regulator's annual test and meeting new capital standards.

"We believe capital return, which will be critical to the Citigroup story, will be a 2014-and-beyond event," the analysts said.

As for restructuring businesses, Cannon notes that Citi has some very profitable businesses, particularly its consumer banking business in North America and Latin America and its transaction processing business. Its securities and banking business, on the other hand, is an underperformer.

Yet Citi seems to be misallocating its capital currently. The report notes that the bank has been investing in the derivatives business, which will likely have lower returns under a new regulatory environment and which other banks have exited.

The bank also is not investing enough in the North American Consumer Business. While credit cards have been a highly profitable business, the bank's market share is slipping in this segment, dropping from 22.2% in the third quarter of 2010 to 21.2% in the third quarter of 2012.

"We believe that Citibank offers current management ample opportunities to realign its capital investments to enhance returns meaningfully."

-- Written by Shanthi Bharatwaj in New York



>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

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

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs