Citigroup: Market Momentum Winner

NEW YORK ( TheStreet) -- Citigroup ( C) was the winner among the largest U.S. banks on Tuesday, with shares rising 1.5% to close at $43.60.

The broad indexes all ended with 1% gains, after the Dow Jones Industrial Average set a new all-time intraday record high. The KBW Bank Index ( I:BKX) was up slightly to close at 55.01, with all but six of the 23 index components rising for the session.

"The retail investor has come back in with a fury, relative to what we have seen the past two years," said Cuttone Director of Sales and Marketing Keith Bliss, in an interview with TheStreet. But Cuttone warned that "when retail investors really plow hard into a market, that generally signals a top."

"We have never seen this amount of involvement from the central banks around the globe, playing inside the asset markets," Cuttone said, adding that stimulative monetary policy has made equity markets "the only place where you can get substantial yield."

Any concerns that investors have had over the $85 billion in mandatory federal budget cuts that kicked in last Friday has apparently been outweighed by Federal Reserve Chairman Ben Bernanke's strong defense of the central bank's "highly accommodative" monetary policy.

"The Fed's current quantitative easing (QE) policy of buying $85 billion in Treasury and mortgage securities per month swamps the $85 billion sequester for the fiscal year 2013," said UBS economist Maury Harris in a report early Tuesday. "Public confidence gauges are improving despite the highly publicized sequester headlines, as QE has helped boost job growth... and politicians' doomsday sequester rhetoric may not be very credible for a public expressing little confidence in their elected leaders," Harris wrote.

Tuesday's economic news supported the increased confidence in the U.S. economic recovery. The Institute for Supply Management on Tuesday said that its Non-Manufacturing Index (NMI) increased to 56.0% in February from 55.2% in January. The consensus among economists was for the index to rise to 55.3, according to Zacks.

Citi Conference


At his firm's Financial Services Conference on Tuesday, Citigroup CEO Michael Corbat outlined the company's long-term goals, which include growing earnings sufficiently to achieve a return on tangible common equity (ROTCE) of 10.0% by 2015. The company's unadjusted 2012 ROTCE was 7.9%.

Corbat is also expecting the company to improve its return on assets (ROA) to a range of 0.90% to 1.10%, from an unadjusted 0.62% last year.

The CEO -- who took over from the ousted Vikram Pandit in October -- said also said the company would exit 21 markets in which the company's low profit margins were "unsustainable," following the company's closure of 84 branches -- including 44 outside the U.S. -- in December.

As expected by investors, Corbat also outlined plans to accelerated the wind-down of Citi Holdings, in order to free up excess capital to be returned to investors.

While it will take some time for Citigroup to tap its potential excess capital -- including a $55 billion deferred tax asset -- the company is expected by many analysts to announce an increased return of capital to investors, following the completion of the Federal Reserve's annual stress tests.

The Fed will announce the results of the 2013 stress tests on Thursday, gauging the largest U.S. banks' ability to withstand an immediate severe recession, while remaining well-capitalized, with Tier 1 common equity ratios of at least 5.0%. Then on March 14, the regulator will release the results of the Comprehensive Analysis and Review (CCAR), which will incorporate banks' 2013 capital plans into the stress tests.

Most of the biggest U.S. banking names are expected to announce dividend increases and/or share buybacks on March 14.

Citigroup currently pays a nominal quarterly dividend of $0.01 a share. The company's initial 2012 capital plan was rejected by the Federal reserve last March, and the company's revised capital plan in August included no dividend increase or buybacks.

This time around, Goldman Sachs bank analyst Richard Ramsden expects things to turn out differently. Ramsden in a report on Monday estimated that Citigroup will raise the quarterly dividend to $0.05 a share and receive approval for $2.110 billion in share repurchases.

C Chart C data by YCharts

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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 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.

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