Citigroup: Cut to Profit Winner

NEW YORK ( TheStreet) -- Citigroup ( C) was the big winner among the largest U.S. financial names on Wednesday, with shares rising over 6% to close at $36.46, after the company announced a major initiative to cut expenses and narrow its focus.

The Dow Jones Industrial Average rose 1% and S&P 500 ( SPX.X) was up slightly, with not only Citigroup pulling its weight but Bank of America ( BAC) rising nearly 6% to close at $10.46, on the strength of several good economic reports.

The NASDAQ Composite ended down slightly as shares of Apple ( AAPL) dropped over 6% to close at $538.81, after a report from Street Insider that COR Clearing had raised its margin requirement on Apple shares to 60% from 30% because of a "high concentration" of ownership.

Meanwhile, DigiTimes reported that Apple could be facing a supply shortage.

Investors seemed to take the day off from worrying over the fiscal cliff, even though both sides seemed to be dug-in for a last-minute game of brinkmanship. President Obama made clear during a Bloomberg interview that he would insist that tax rates rise on "the upper income folks," while Speaker of the House John Boehner (R-Ohio), touted a different approach that the Republicans said would increase federal government revenue by $800 billion over ten years, without raising tax rates.

Automated Data Processing said on Wednesday that the U.S. economy added 118,000 private sector jobs during November. The payroll processor said that the rate of job creation declined from a revised 157,000 during October. Moody's Analytics chief economist Mark Zandi said Hurricane Sandy "wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls," as "the manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month."

In other economic news, The ISM Non-Manufacturing Index showed an increase to 54.7 in November from 54.2 in October. An index reading over 50 indicates expansion. The Census Bureau reported that factory orders rose 0.8% in October after increasing by a downwardly revised 4.5% in September.

The KBW Bank Index ( I:BKX) rose 2% to close at 48.64, with all but three of the 24 index components rising for the session.

Corbat Acts to Right-size Citi

Citigroup announced a series of moves meant to lower its annual expenses by $900 million in 2013, with total expense savings increasing to $1.1 billion in 2014. The company expects its annual revenue to decline by only $300 million as a result of the closure of 84 branch offices, including 44 in the United States, as offices in Brazil, Hong Kong, Hungary, and South Korea.

The company said it would trim its work force by 11,000, including 6,200 in its Global Consumer Banking segment, 1,900 in the Institutional Clients Group, 2,300 Operations & Technology positions, outside those included in the GCB and ICG cuts, and 350 layoffs in Citi Holdings.

Citi Holdings is the company's subsidiary holding noncore assets that are running off, as part of former CEO Vikram Pandit's "good bank/bad bank" strategy. Current CEO Michael Corbat ran Citi holdings for a time under Pandit's leadership, before becoming the company's CEO for Europe, the Middle East and Africa, before replacing Pandit as Citigroup CEO in October.

Credit Agricole analyst Mike Mayo -- who has often been a critic of Citigroup over the past several years -- said in a report after Citi's announcement that "the new CEO took a serious playbook off the shelf and started with moves in his old region of EMEA (three of five exit countries)."

Mayo said that "the moves today create a tone that the new CEO will not take half measures," but that his firm was viewing Citigroup's expense cuts "as an initial 'tremor' and that an 'earthquake' or more radical restructuring is needed before the April 16th annual meeting to satisfy activists."

The analyst rates Citigroup "Outperform," with a 12-month price target of $43.00.

Citigroup's shares have now returned 39% year-to-date, following a 44% decline during 2011.

The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for eight times the consensus 2013 EPS estimate of $4.64, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.03.

Citigroup is currently paying a nominal quarterly dividend of a penny a share, and the company has not repurchased any shares this year.

After the Federal Reserve announced its methodology for the next round of bank stress tests, Barclays analyst Jason Goldberg on Nov. 12 said he expects Citigroup to raise its quarterly dividend to four cents a share following the stress tests, while gaining Fed approval to repurchase $2 billion worth of common shares, or 1.7% of shares outstanding, through the first quarter of 2014.

C Chart C data by YCharts

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

Bank of America Passes the $10 Mark

Bank of America's shares on Wednesday closed above $10 for the first time since July 2011. The shares have now returned a whopping 89% year-to-date, following a 58% decline during 2011. But the shares are still down 25% since the end of 2010.

BAC shares trade for 0.8 times their reported Sept. 30 tangible book value of $13.48, and for 11 times the consensus 2013 earnings estimate of 97 cents a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $1.27.

Like Citigroup, Bank of America pays a quarterly dividend of a penny a share, and has not bought back any shares during 2012.

In his Nov. 11 report, Goldberg said that after the next round of Federal Reserve stress tests are completed in March, he expects Bank of America to raise the quarterly dividend to six cents, while also being approved to repurchase $3 billion worth of common shares (2.8% of outstanding shares) through the first quarter of 2014.

When asked about Bank of America's trading action on Wednesday, Tom Brown, who runs and manages Second Curve Capital said in an email that "traders want to own the 'beta' names." The chart below shows just how volatile a name Bank of America has been this year:

BAC Chart BAC data by YCharts

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

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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 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.