NEW YORK (
was the loser among large financial services companies on a weak Thursday for the sector, with shares declining 3% to close at $29.58.
The broad stock market indexes all pulled back considerably, with both the Dow Jones Industrial Average and S&P 500 Index declining near-1% on Thursday.
KBW Bank Index
was down 1% to close at 46.89, with all but two of the 24 index components showing declines for the session.
Bank stocks declined after the Labor Department reported on Thursday morning that initial jobless claims for the week ended Aug. 18 rose 4,000 to 372,000, from the previous week's upwardly revised figure of 368,000. The four-week moving average is now 368,000, an increase of 3,750 from the previous week's average of 364,250.
Hopes for further economic stimulus from the
waned, just a day after the market interpreted the latest release from the Fed's Federal Open Market Committee as a hint that quantitative easing three was coming "fairly soon." Federal Reserve Bank of St. Louis President James Bullard said during an early Thursday morning interview on
that the numbers contained in the FOMC minutes released on Wednesday were "a bit stale ... we have some data since then that is stronger."
Investors reacted to disappointing financial results from PC giants Hewlett Packard (HPQ) - Get Report and Dell (DELL) - Get Report over the past two days, with Jim Cramer saying that both companies would "lose a lot of customers," as enterprises and consumers move away from Windows-based PCs toward other devices, including those made by Apple (AAPL) - Get Report.
Citigroup's shares have now returned 13% year-to-date, following a 44% decline during 2011.
Citi has one of the cheapest valuations among large bank holding companies, with the shares trading for 0.6 times their reported June 30 tangible book value of $51.81, and for 6.5 times the consensus 2013 earnings estimate of $4.53 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.09.
JPMorgan Chase analyst Vivek Juneja has a neutral rating on Citi, saying on Monday that "increased capital return in 2012 had been a key catalyst for the stock and the Fed's refusal to approve Citi's capital return plan and Citi's decision to not ask for return in the resubmission pushes this out to 2013."
For long-term investors, the analyst listed several positive factors for the shares, in addition to the trading multiples, including "strong and growing capital levels;" international revenue growth opportunities, as the company's business outside the U.S. accounted for 40% of revenues during 2011; a "sizeable amount of loan loss reserves," and the "long run potential for return of excess capital to shareholders."
For patient long-term investors, Citigroup could eventually become a capital return story, as the company continues to follow CEO Vikram Pandit's "good bank/bad bank" strategy to reduce its balance sheet by allowing noncore assets to runoff within Citi Holdings, while focusing on growing revenues from main subsidiary Citicorp.
Atlantic Equities analyst Richard Staite said in July that "arguably Citicorp only needs $88bn of capital to operate assuming a 9.5% ratio" of Tier 1 common equity to risk-weighted assets, under the Basel III regulatory capital rules.
Staite went on to say that "given that Citigroup has $151bn of tangible common equity but only needs $88bn to run Citicorp it shows that there is a further $63bn that is currently trapped within Citi Holdings and the
deferred tax assets valuation allowance, or DTA."
"This is capital that should be available to be returned to shareholders at some point assuming the group can
utilize the DTA and that the $10bn of loan loss reserves within Holdings is sufficient to cover losses," the analyst said.
While the Federal Reserve "took a cautious view early this year," in denying Citigroup permission to return capital to investors through a dividend increase or share buybacks, Staite believes "the fact that the Basel III
tier 1 common equity ratio has reached 7.9%, the same as
, bodes well for the start of a capital return in 2013."
Staite rates Citigroup "overweight," with a $44 price target, and estimates the company will earn $3.81 a share for all of 2012, followed by 2013 EPS of $4.89.
Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.
Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.