Citigroup (NYSE:C) has been in the news after the departure of Vikram Pandit. We've heard about the 11,000 jobs cut initiated by CEO Mike Corbat and Chairman Michael O'Neill as a part of the restructuring plan, and things are only getting hotter by the day. As Marty Mosby, a Guggenheim Securities LLC analyst, said:
It is a shift in priorities and a shift in magnitude…The board was more comfortable in maximizing profitability through efficiency initiatives in lieu of trying to aggressively seek incremental growth opportunities.
Remember, it was Vikram Pandit who hired an additional of around 266,000 headcounts last year for the expansion of business in India, China, Singapore, and Mexico, right after paying a $45 billion U.S. bailout. Well, CEO Corbat must be righting what wrong has been done, and that spurs the decision of 11,000 job cuts.
The move is expected to add $900 million and $1.1 billion to net income next year and the following year, respectively. Yet annual revenue is expected to go down by $300 million. The company's sales revenue was $91.9 billion in 2009, $86.6 billion in 2010, and $78.4 in 2011. The average revenue estimate for FY 2013 is around $71.1 billion. Deducting $300 million from that, it comes down to around $68 billion next year, which might offset the increase in net income a bit. Hopefully, we will see a comeback by the end of 2014.
One thing that gets my attention is that the book value per share has dropped to $60.56 in Q3 FY 2012 from $62.61 in Q2 FY 2012 and from $63.59 in Q1 FY 2012. That's a decrease of 4.77% on an annual basis. Strangely, the stock price has risen by 38.96% year to date. For the record, the stock is trading at $36.57 at the time of writing this article. So what's happening here? Are we seeing the upward momentum of the price-to-book ratio, which might make some good money for the long investors? Or is it just another market sentiment that will wear away leading to downturn over time?
Think about the $1 billion pre-tax charge that resulted due to these job layoffs. As was said, 35% of Q4 FY 2012 costs are attributable to job layoffs. Whew! And these are going to subtract from the bottom line of the company. Last year's net income was recorded at $11 billion. To add to that, current year growth is estimated at 11.3%, which indicates that the annual net income is supposed to reach $12.24 billion this year. Subtract $1 billion from that and you get around $11.24 billion this year, up from $11.1 billion in 2011. Net income was $10.6 billion in 2010. That's not much of a change this year or the previous year, is it? Perhaps that's the reason why Corbat is so charged up on the restructuring plan.
On top of that, Citigroup has extended its prior announced invitation to eligible holders of its 1.5 billion euros 7.375% fixed rate senior notes due June 16, 2014, and 1.25 billion euros 4.000% fixed rate senior notes due Nov. 26, 2015, to tender their notes for purchase by the company for cash, and an upsizing relating to the offer for the 2014 notes. This just goes to show the robustness of Citigroup's liquidity position once again.
Citigroup's liquidity resources include $98.4 billion worth of non-bank assets, $200.2 billion bank assets, and $106.9 billion in other entities. With the improving current ratio higher than 1, it's not surprising that the bank is using its idle assets to decrease the liabilities even further.
If you are curious as to how long-term debt matures as of this year and going forward:
The company seems to be in a good position to not only pay back the liabilities but buy back the debt as well, and that's what Citigroup is doing at the moment. Not to mention that Citigroup's total debt-to-equity ratio is not sky-high at 315.13, compared to Bank of America's (NYSE:BAC) 270.68, Goldman Sachs' (NYSE:GS) 646.66, JPMorgan Chase's (NYSE:JPM) 373.04, and Morgan Stanley's (NYSE:MS) 315.05. Yet 315.13 is not something that you want to keep feeding as long as you can pay it off. And Citigroup is doing just that.
This article was not meant to give you an ultimate answer, but rather was intended to make you focus on certain aspects of the company. In short, Citigroup's stock price rise does interest me, but thinking about the long-term business fundamentals I would wait at least one year to make a definite decision on the company.
Disclaimer: Please consult your personal financial advisor before investing in the stock market.