Author Topic: C - Citibank  (Read 183218 times)

Viking

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Re: C - Citibank
« Reply #630 on: July 02, 2018, 04:05:22 PM »
HJ, you make a great point. Each of the large US banks are quite different animals. Currently my largest position (by far) is BAC, and one of the key reasons is it is more US focussed (than C).

Yes, C has the largest international exposure of the big US banks. What really appeals to me about C is valuation and capital return. The bank currently has a market cap of $171 billion. They are going to do $17.6 billion in stock buybacks the next 4 quarters and perhaps the same next year as well. That is 20% of its market cap in 8 quarters. Dividend is yielding 2.6% per year. This might make sense if this was a distressed asset. However, it looks to me that C is improving its operations each year and increasing the value of its underlying businesses.

Also, if the US economy continues to grow nicely I think it is likely this will keep the rest of world economies on the rails which will be good for C and their international exposure... we will see :-)


StevieV

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Re: C - Citibank
« Reply #631 on: July 13, 2018, 08:39:48 AM »
Clearly, the market is not impressed with Q2.  I haven't reviewed closely enough to have a strong opinion.  Regardless, I will likely hold my small position.  I am holding not because I think C is necessarily a great operator, but because it is cheap.  Even moreso now.  Probably around 10 times 2018 earnings and 9 times projected 2019 earnings.

The capital return program has been approved, so the buybacks will keep the share count moving down.

ourkid8

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Re: C - Citibank
« Reply #632 on: July 14, 2018, 09:52:55 AM »
Q2 results were OK, nothing impressive.  The most important takeaway is that the CEO confirmed they will exceed the $2.5B efficiency savings by 2020. They also may move forward additional growth/cost savings initiatives which were marked for post 2020 which is amazing.  Management guided in 2018 we will see a 100 basis point improvement in the efficiency ratio and then over the next 8 quarters we will see an additional 400 point improvement. 

Citi is the 2nd largest position in my portfolio and this cannibal stock is really cheap! We should see huge improvement in operations as they are targeting a low 50s efficiency ratio(52/53%) along with the massive share repurchase program in place (especially as the stock is selling below book) which will dramatically reduce the shares outstanding.  If we see revenue growth accelerate, that will be icing on the cake.
« Last Edit: July 14, 2018, 10:10:30 AM by ourkid8 »

John Hjorth

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Re: C - Citibank
« Reply #633 on: July 14, 2018, 11:02:14 AM »
Thank you Stevie & ourkid,

I'll give both your posts a +1. We need to hold on here.

- - - o 0 o - - -

Recently, - a couple of times, I think - Viking has brought up sale of C assets, divestments of activities, to release values, and to shake up C. I think last time was yesterday in the BAC topic.

Honestly, I haven't thought about C this way till now, but I consider it relevant. Valueact is invested in C. So what are your thoughts on this matter, gents?

- - - o 0 o - - -

[J/K] If this continues as it has done the last year or so, in some thousand years from now, perhaps, we'll be forced to discuss to setup a unlisted C holding company to pool our C shares - because we as a group here on C are the effectively controlling shareholders of the whole damn C - almost everybody else will then have been bought out by the bank itself - ... lots of privileges will be lost and disadvanges will pop up for us as group: No freedom here on CoBF to call the banks CEO an idiot or what ever, no longer no free speach about C for us here on CoBF. Add to that to take full overall responsibility for a sucker like this. - In short, our lives will become so miserable!
- However there will be at least some advantages for us too in that future situation:
1. It will look good on a business card to have with small print under our name: "Bank co-owner" [In fact you could add it right now, but perhaps the resonance blades a bit hollow right now]. It happens from time to time that the Lady of the House calls me a snob, and I don't always fight against feircely [because I can't].
2. There will likely be perks to us, too: Free diapers, to avoid damages inside the board room caused by our malfunctioning ring muscles! [/J/K]
« Last Edit: July 14, 2018, 11:07:21 AM by John Hjorth »
”In the race of excellence … there is no finish line.”
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ourkid8

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Re: C - Citibank
« Reply #634 on: July 14, 2018, 12:05:56 PM »
Citi has been divesting businesses and exiting global retail banking for many years now so I am certain these tweaks will continue in the future based on profitability; This is business as usual.  I am not expecting anything dramatic like a total breakup of the company or selling core assets such as Banamex. 

Why do you consider this topic relevant? Do you really think Valueact will push for a total breakup?  I doubt it...   


Recently, - a couple of times, I think - Viking has brought up sale of C assets, divestments of activities, to release values, and to shake up C. I think last time was yesterday in the BAC topic.

Honestly, I haven't thought about C this way till now, but I consider it relevant. Valueact is invested in C. So what are your thoughts on this matter, gents?
« Last Edit: July 14, 2018, 12:08:16 PM by ourkid8 »

John Hjorth

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Re: C - Citibank
« Reply #635 on: July 14, 2018, 12:20:31 PM »
I'm just asking out in the open, ourkid,

And asking about how you think about it, from your personal angle and perspective.

Here is my personal take: I naturally don't know if Valueact consider their position a "passive" value play or an activist position. Time will tell.

No matter what will happen with regard to that, or some kind of other shareholder pressure from another angle, I speculate, Mr. Corbat will be very defensive against it, because he's not only the person responsible for execution of what had to go into the "the bad bank" to get sold or otherwise liquidated post GFC, he was also the person to plan and propose to the board what had to go and what would have to stay inside the "new post-GFC C".

If something inside C as is today develops into a serious laggard going forward, I suppose Mr. Corbat will take the intiative to dispose that activity him self, if he feels he can't fix it.
« Last Edit: July 14, 2018, 12:22:53 PM by John Hjorth »
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

Viking

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Re: C - Citibank
« Reply #636 on: July 14, 2018, 11:32:41 PM »
I agree, C results were ok. The good news is total profits are growing (RBC estimates to about $16.5 billion in 2018 and $17.2 in 2019). It looks like they will be able to harvest about $1 billion each year from their deferred tax asset (for the next +12 years) which increases the amount that can be returned to shareholders. This will increase regulatory capital by $17.5 billion in 2018 and $18.2 billion in 2019. Average shares outstanding were 2.7 billion in 2017, and are est to be 2.5 billion in 2018 and 2.25 billion in 2019. Regulatory capital will be increasing by $7/ share in 2018 and $8/share in 2019. Looks cheap to me.

The challenge for C is they seem to be struggling with how to grow sustainably as a company. JPM has been working a plan to grow for many, many years so it is very clear to investors what to expect. BAC appears to be in the process of turning the corner and it’s plans to grow are becoming more apparent (we will get another update Monday). C seems to be coming up with a new idea each year; almost like a gimmick. Two years ago, the growth engine was going to be US card business. Last year it was investments in Mexico. Today it is investments in digital banking. Their decisions over the years have been ok as total profits are growing. However, I am surprised that all of the pieces to their business are not fitting together better by now and their business results and strategies are not more organic and fluid. It feels like they spent years ripping the company apart to sell off units and downsizing. Now that they are largely done they need to pull all the remaining pieces back together and get them working together and this is proving a difficult task.

ourkid8

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Re: C - Citibank
« Reply #637 on: July 15, 2018, 07:58:51 AM »
In all fairness to C, these growth initiatives take many years to take shape and I agree with you putting all the pieces back together seems to be a challenge.  On the Q2 call, they highlighted that they are in the process of removing the aggressive promotions for the US card business and there is a client retention of slightly under 50% which is amazing. 

It seems to me that their $2.5B+ in cost savings initiative is very similar to project BAC.  For BAC, once they achieved their cost savings target then at that point management's focus changed to growing the business.  C is currently trying to do both at the same time which is extremely challenging. 

C seems to be coming up with a new idea each year; almost like a gimmick. Two years ago, the growth engine was going to be US card business. Last year it was investments in Mexico. Today it is investments in digital banking. Their decisions over the years have been ok as total profits are growing. However, I am surprised that all of the pieces to their business are not fitting together better by now and their business results and strategies are not more organic and fluid. It feels like they spent years ripping the company apart to sell off units and downsizing. Now that they are largely done they need to pull all the remaining pieces back together and get them working together and this is proving a difficult task.
« Last Edit: July 15, 2018, 10:53:15 AM by ourkid8 »

Viking

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Re: C - Citibank
« Reply #638 on: July 15, 2018, 12:39:09 PM »
Ourkid8, my perception is BAC has been working pretty much the same plan for the past 5 years or so. In the early years, despite low profitability I think they were still investing in integrating (Merrill Lynch and old BAC etc) and growing the various business (especially in mobile). The result of this investment was their profitability lagged peers. They also were the slowest of the big banks to return large amounts of capital. Lots of work still needs to be done but there is a reasonably clear path forward for investors to follow to understand where BAC is going. Moynihan’s weakness might be his conservatism, but this also may be a strength for the bank moving forward especially when the next recession hits the US.

Citi, on the other hand, still feels like a work in progress. Investors still do not have a clear idea which part of Citi is going to deliver (enough) growth moving forward; legacy assets continue to run off and this is muting the top line numbers. Expense reductions in 2019 ams 2020 and large share repurchases is not enough on its own to get investors excited; they want to hear what the company is going to be doing to drive top line growth (like JPM and hopefully BAC). They are tired with Citi playing mostly defence and they want to see some offense. Last year during their investor day Citi took a big step in the right direction by providing investors with a credible plan to 2020; Citi did not build on this year old plan and it appears investors are not happy with their complacency.

I am fine sitting in the weeds with my C shares. EPS will be growing at a 12-15% per year clip the next couple of years. Dividend now yields 2.6%. If they find a way to get some more balanced and  sustainable growth in their top line then that will be icing on the cake.
« Last Edit: July 15, 2018, 12:46:22 PM by Viking »