Official PayPal Seal

Citigroup Remains a Sub-scale US Bank

publication date: Apr 17, 2019
author/source: Matthew Warren

Image Source: Matt Buck

Even if Citigroup achieves improved return-on-capital targets, it would remain a sub-scale US bank from a nationwide perspective, and it remains overly reliant on Corporate and Investment banking, which is an overtraded and competitive field globally.

By Matthew Warren

Citigroup (C) reported middling first-quarter results April 15, with revenues down 2% versus last year, to $18.6 billion. Thanks to strong operating expense control (-3%), lower taxes, and a 9% lower share count, earnings per share advanced 11%, however. With a common equity tier 1 ratio of 11.9%, Citigroup was able to return over $5 billion to shareholders in the quarter. The bank reported a 11.9% return on tangible equity in the quarter, barely better than the cost of capital, and this without including goodwill and intangibles in the equation.

On the earnings call, CFO Mark Mason confirmed that the bank is targeting 12% return on tangible common equity in 2019 and 13.5% or greater in 2020. Citigroup is hoping to reduce its common equity tier 1 ratio to 11.5% from the current 11.9% (requires regulatory approval), but the rest of the improvement would largely come from reducing the efficiency ratio from current levels, which the bank has been doing for the past several quarters. The CFO also seemed to indicate on the earnings call that it considers current loan losses to be mid-cycle or normalized, which is highly questionable in my opinion, giving the extremely benign economic conditions that the US economy has been enjoying for some time.

More realistically, Citigroup’s earnings could come under substantial pressure in an environment of considerable job losses. Even if the bank hits these improved return-on-capital targets, Citigroup would remain a sub-scale US bank from a nationwide perspective, and it remains overly reliant on Corporate and Investment banking, which is an overtraded and competitive field globally. There are simply too many players and some of them are national champions in Europe, where overcapacity is pronounced. Many of those banks are operating with limited earnings power, yet they continue to fight for market share. Our fair value estimate remains $71 per share.


Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.

Matthew Warren does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

0 Comments Posted Leave a comment


Add a comment:

Sign in to comment on this entry. (Required)

The High Yield Dividend Newsletter, Best Ideas Newsletter, Dividend Growth Newsletter, Valuentum Exclusive publication, ESG Newsletter, and any reports, data and content found on this website are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of its newsletters, reports, commentary, data or publications and accepts no liability for how readers may choose to utilize the content. Valuentum is not a money manager, is not a registered investment advisor, and does not offer brokerage or investment banking services. The sources of the data used on this website and reports are believed by Valuentum to be reliable, but the data’s accuracy, completeness or interpretation cannot be guaranteed. Valuentum, its employees, and independent contractors may have long, short or derivative positions in the securities mentioned on this website. The High Yield Dividend Newsletter portfolio, ESG Newsletter portfolio, Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are not real money portfolios. Performance, including that in the Valuentum Exclusive publication and additional options commentary feature, is hypothetical and does not represent actual trading. Actual results may differ from simulated information, results, or performance being presented. For more information about Valuentum and the products and services it offers, please contact us at