Citigroup Leaves Offering Price Behind

Thanks to a fast start in the new year, Citigroup shares are already trading comfortably above the pricing of the company's recent equity offering.
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Updated for latest share price, news that director Deutch won't seek re-election.



) -- Thanks to a fast start in the new year,


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shares are already trading comfortably above the pricing of the company's recent equity offering.

This week's move, which mirrors strength in a number of the other big financials, including

Bank of America

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, has also come on progressively stronger volume, usually a positive sign.

In the first three sessions of 2010, nearly 1.75 billion Citigroup shares changed hands (406.4 million on Monday, 667.5 million on Tuesday, and 673.2 million on Wednesday, according to Yahoo Finance historical data.) On Thursday, the stock was edging higher in recent trades, adding a penny to $3.65, and volume was a brisk 486 million. The stock was once again the most actively traded issue on the New York Stock Exchange by a wide margin, ahead of Bank of America,

General Electric

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Ford Motor Co.

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Qwest Communications



Perhaps most striking is how far the stock has been able to run beyond the $3.15 per share level where it priced its TARP payback-related equity offering in mid-December. The reception the offering got was lukewarm at best, and the government, which had planned to sell some its massive stake in the company through the offering ended up balking. Wednesday's close of $3.64 is 15.6% above, and Thursday's session-high of $3.70 brought it nearly 18% above. Underlining the volatility in the stock, however, it still looks weak compared to plus $4 levels it enjoyed at the start of December.

There was also some bullish sentiment on Wall Street to go along with the rally. Deutsche Bank analyst Matt O'Connor earlier in the week named Citigroup one of his top picks along with


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Wells Fargo

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"We think Citi is the best large cap bank play on macro recovery," O'Connor wrote in a research note. "It provides among the most leverage to an improving economy/capital markets, given large exposure to U.S. mortgage/credit card, run off of Citi Holdings (easier in a better environment), and solid global investment bank/treasury franchises."

The next important data point on the health of the economy will be Friday's closely watched

nonfarm payrolls report


O'Connor cites that Citigroup's capital remains strong, with pro-forma Tier 1 common ratio at 9% vs. 7.5% for peers, with $26 billion of deferred tax assets currently excluded and a shrinking balance sheet, according to the note.

"We believe the stock is attractively valued, trading at 0.9x our estimate of trough tangible book," O'Connor wrote "The biggest risk in the near term remains the sale of the U.S. government stake over the next 6-12 months," following a 90-day lock-up, which expires in March.

Wall Street will get some insight into how the big banks finished up 2009 later this month when

JPMorgan Chase

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kicks off reports for the group on Jan. 15. Citigroup is set to report its fourth quarter and full-year results on Jan. 19, and analysts, on average, expect the company to post a loss of 6 cents a share for the December period, according to

Thomson Reuters


"While we expect another sluggish quarter for bank earnings ... we believe expectations are low and there may be some positives," O'Connor wrote in his note. "These include a further slowdown in the pace of credit deterioration (or even signs that certain credit costs may start trending down), reserve build coming to an end, early signs that commercial loan growth is picking up, and further net interest margin expansion."

And while there has been recent improvement in bank stock performance over the past few weeks, "the group has meaningfully underperformed the overall market in recent months -- resulting in attractive relative valuations in our view," O'Connor added.

O'Connor also has buy ratings on JPMorgan Chase,

U.S. Bancorp

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and in the regional space,

Huntington Bancshares

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Not everyone on Wall Street is as bullish on Citigroup as O'Connor. Of the 20 analysts covering the company, according to

Thomson Reuters

data, a majority have it at either hold (9), underperform (2), or sell (2).

Some of that trepidation reflects a view that the effects of the financial crisis are likely to reverberate within Citigroup for years to come. Besides the company's continuous troubles with massive consumer loan exposure and other toxic assets, Citigroup continues to see fallout from other fronts.

According to a report by the

Financial Times

late Wednesday, Citigroup is being sued by former senior executive Kevin Kessigner in relation to his severance package being frozen last year amid the political controversy over Wall Street pay.

Citigroup had suspended payments to a number of departed executives in June 2009, including Kessinger and Michael Klein, its former investment banking chief. Kessigner, Citigroup's former head of technology and operations, is now employed at

TD Bank

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Also, during Thursday's session, the company disclosed in a regulatory filing that John Deutch won't seek re-election to the company's board at its next annual meeting in April. Deutch is a professor at the Massachusetts Institute of Technology.

--Written by Laurie Kulikowski in New York.