This Day On The Street
Continue to site
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 Looks Like a Smart Hedge as Interest Rates Remain Low

NEW YORK (TheStreet) -- Citigroup (C - Get Report) has been the worst performer among the big four U.S. banks in 2014 for lots of good reasons, but unlike peers such as Wells Fargo (WFC - Get Report), JPMorgan Chase (JPM) and Bank of America (BAC), Citigroup might fare surprisingly well in what looks like a sustained low interest rate environment.

Most banks want to see interest rates rise because it will allow them to invest and write new loans at higher yields. The amount they will have to pay on deposits will also increase, but traditionally at a slower rate.

Take Bank of America CFO Bruce Thompson, for example, following the release of first quarter earnings April 16.

"We continue to remain poised to benefit from higher rates, particularly when the short end of the curve moves up," Thompson said.

Thompson's counterpart at JPMorgan Chase, Marianne Lake, made similar comments during her company's first quarter earnings call.

"Deposit margins are relatively flat. At the moment, we've reached the point where volume is providing support to [net interest income] but not strong growth until we start to see rates continue to rise and be able to reinvest up the curve as deposit investments mature," she said.

Wells Fargo sees the "most likely" scenario as a 1% Fed funds rate and a 3.56% 10-year Treasury rate over the next 24 months, according to its latest quarterly filing March 31. If rates stay lower than that, earnings will be lower. If rates move higher Wells Fargo estimates, the bank expects to earn more.

Nearly three months later, however, the Fed funds rate has moved up by just .02% to .1%, and the 10-year Treasury has fallen to 2.66% from 2.72%.

Increasingly, forecasters are predicting interest rates may stay where they are for years. Executives at PIMCO, one of the world's largest bond fund managers, have recently referred to a "new neutral" where the global economy "will be unable to grow and generate inflation at pre-crisis levels for many years to come."

Citigroup sounds like it may be better prepared for such an eventuality than peers. Responding to a question about the bank's preparedness to hit 2015 financial targets it put out in early 2013, CEO Michael Corbat said, "we didn't see nor were we counting on a big uplift in terms of interest rates to be able to achieve our targets and we're going to achieve these targets through a few things."

Those things include "expense discipline" and ongoing efforts to wind down or sell assets in the unit known as Citi Holdings. More important to this discussion, however, is that they do not rely on a rise in interest rates.

Citi has been punished by investors for fraud in its Mexico unit disclosed in February and for having its capital plan rejected by the Federal Reserve in March.

1 of 2

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
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
C $44.72 0.13%
WFC $48.94 0.01%
AAPL $93.22 -0.43%
FB $118.13 0.06%
GOOG $699.54 0.55%


Chart of I:DJI
DOW 17,694.78 +43.52 0.25%
S&P 500 2,055.41 +4.29 0.21%
NASDAQ 4,732.6950 +7.0560 0.15%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs