Tag Archives: Vikram Pandit

Business, Finance, Occupation & Industry

The Right Way to Think About Citigroup

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By John Grgurich, The Motley Fool

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It wasn’t all that long ago that I was positively bearish on Citigroup , lumping it in with Bank of America as a financial leviathan still deeply damaged from the banking crisis, still far from turning the corner back into operational normalcy, and therefore not a safe, profitable place for investors to put their money.

Citi is still a leviathan, but it is turning that corner more quickly than I’d previously thought possible — quickly enough to convince me to buy a few shares as a sort of test run. Here’s a quick overview of how I think the bank is still currently viewed by investors and how I think it should be.

A glass half empty
Of the big four banks, B of A was unarguably damaged the worst in the financial crisis, but Citi wasn’t far behind. Both banks overindulged in the housing boom, and ended up with massive amounts of toxic mortgage debt on their books.

Citigroup put its bad assets into a “bad bank” called Citi Holdings, which moved the toxic debt off the main balance sheet but didn’t absolve the superbank — or its investors — of the responsibility to deal with it. In the most recent quarter, Citi Holdings cost Citigroup $1.1 billion in losses. In the first half of 2012, the losses totaled $2.02 billion.

Also, since the financial crisis, I think the leadership at Citigroup has mainly been at a loss as well. Vikram Pandit, the bank’s former CEO who came on in 2007, needs to be given credit for stabilizing the bank at what was undoubtedly its moment of extreme crisis (and repaying $45 billion in federal bailout money ), but also needs to take the blame for not maximizing the superbank’s significant assets.

One example of this is the sale of the remainder of Morgan Stanley Smith Barney back to Morgan Stanley last fall. It’s generally thought that Citi botched the deal, coming around too easily to Morgan Stanley‘s lowball valuation of the joint enterprise. The superbank ended up losing $2.9 billion on MSSB.  

A glass half full
The good news regarding Citi Holdings is that the bad bank’s balance sheet and losses are both on the decrease.

In the fourth quarter of 2011, Citi Holdings‘ net loss was $1.3 billion, but was just $1.1 billion a year later. And total assets in the bad bank were $156 billion for Q4 2012, 31% lower than for Q4 2011. Finally, the continuing resurgent housing market means poorly performing assets might get even more of a boost in the right direction moving forward.

As for leadership, it’s no secret that Pandit is now gone — replaced in a coup engineered by Citigroup chair Michael E. O’Neill last October — but exactly how his successor would behave is no longer a secret.

Michael Corbat was O’Neill’s handpicked replacement for Pandit and is a well-regarded 30-year veteran of Citi who took over the bank’s global wealth-management …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Citi Emerges Victorious

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By Amanda Alix, The Motley Fool

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All eyes have been on bank stocks this week as investors waited to hear of the results of the Fed’s stress test results. While much of the excitement centered on Bank of America and its nicely padded capital cushion, Citigroup , a stress-test loser last year, surfaced as a clear winner, showing up fellow big banks B of A, JPMorgan Chase , Goldman Sachs , Morgan Stanley, and Wells Fargo in the post-test, Tier 1 common capital category.

Playing it safe
Citi came out of the test — which required a minimum post-test 5% capital reserve — with an 8.3% capital ratio, higher than Wells’ 7%, B of A’s 6.8%, and JPMorgan’s 6.3%. Both Goldman and Morgan Stanley emerged with ratios under 6%.

The super-charged stress scenario, reserved for the six largest banks, entailed an economic climate that featured 12% unemployment, a drop in real estate prices of 20%, and a general weakening of GDP by nearly 5%. In other parts of the world, the toughest scenario envisioned nasty recessions in Europe and Japan, with stalled economies in developing nations.

Despite going into the test with a Tier 1 ratio of 12.7% — the highest of any other bank — Citi choose to be conservative in its capital requests from the Fed. In an early release of this information, the bank revealed that it had asked for a $1.2 billion stock repurchase, and the maintenance of its current $0.01 per share quarterly dividend.

While some analysts expected Citi to increase its shareholder payout, it appears that new CEO Michael Corbat elected to play it safe. Along with SunTrust  and Fifth Third Bancorp, Citi was stung last year by having its capital plan denied by the Fed. Although it submitted a revision that was eventually accepted, this particular incident has been considered key in the downfall of Vikram Pandit last fall.

What’s next for Citi?
Corbat has already announced where he wants to take Citi, underlining the fact that the bank must make it or break it in over 20 markets within the next two years. He plans to improve return on assets from 0.6% in 2012 to at least 0.9% by 2015, as well as a minimum 10% return on tangible common equity by that year, as well.

Much like Bank of America’s Project New BAC, Corbat will trim the bank holding company by selling off much of its Citi Holdings, which has been a drag on the bottom line.

With such a plan in place, Citi should be on its way. Investors are rallying, having pushed the share price to a $45 closing yesterday — something the bank hasn’t seen in a while. Is Corbat the one that will turn Citi around? It’s looking good so far.

Citigroup’s stock looks tantalizingly cheap, and, despite the progress made and the stress-test triumph, the bank’s balance sheet is still in need of more repair, and there’s a considerable amount of uncertainty after a shocking management shakeup. Should investors …read more
Source: FULL ARTICLE at DailyFinance