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Citigroup (NYSE:C) as we all know is a 200-year-old international banking giant based in New York, New York. The bank has 16,000 offices, and +250,000 employees in over 135 countries. Though Citi shares have been major winners over the last year, the shares still trade well below book value and are still down almost 20% from their reverse-split price of $5 per share in early 2011. In this article we will look at Citi's 2012 10-K filing, and its 2013 Citi Proxy Statement.

2012 10-K

Figure 1 below shows the macro structure of Citi as a bank and holding company. Just a quality, concise, overview of the company.

Figure 1

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Now to the financials. Figure 2 shows a concise, summary of Citigroup operations over the last 5 years; 2008-2012. The blue arrows below highlight that Citi has come back from the brink of collapse, but is still in recovery. The huge losses of 2008-2009 are behind the bank, but earnings will not recover in a straight line.

Figure 2

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Below in Figure 3, is page two of the five-year summary. The blue arrow indicates everything is important. Figure 3 states the following: steady Total Assets, increasing Total Deposits, a much leaner and meaner staff count (323,000 to 259,000), an improving Efficiency Ratio, increasing Tier 1 Capital, increasing Tier 1 Common, Increasing Total Capital, and growing Book Value.

Figure 3

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Now for a look at Citi's North America Residential First Mortgage delinquency rates; Figure 4. One of the reasons the bank trades well below book value is due to concerns investors have about the mortgage portfolio. The data shows the loan portfolio is performing better, and the long-term trend shows declining delinquency rates.

Figure 4

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Similar to Figure 4, Figure 5 shows the delinquency rates of Citi's North America Home Equity Loan portfolio. The data shows the portfolio is improving, although it should be noted that the rate of improvement has slowed in recent quarters.

Figure 5

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Going international now, Citigroup does have sizable exposure in the eurozone. Figure 6 below illustrates the risk in Greece, Ireland, Italy, Portugal, and Spain (GIIPS) (high risk); and France. As you can see much of the risk in the GIIPS countries is hedged through credit protection. France is listed because it is perceived as weak, and the outstanding loans to French corporations in particular are sizable. Two things should happen over the next few years, American banks will continue to shield themselves from European financial woes, and the European continent should at least stabilize (and maybe begin to recover slowly).

Figure 6

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2013 Proxy

Figure 7 below shows in detail ownership of Citigroup common stock by company directors and executives. Honestly these numbers are not overly impressive, but important nonetheless. At a total of more than 5.7 million shares, Citi leadership owns approximately .19% of outstanding common stock.

Figure 7

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Figure 8 illustrates Citi's "2012 Performance Results." A solid comparison showing the bank's performance vs. its peers in the following categories: Efficiency Ratio, Net Income to Common Shareholders, Return on Assets and Return on Common Equity.

Figure 8

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  1. Efficiency ratio is total operating expenses divided by total revenues (net of interest expense). As a result, a smaller efficiency ratio is generally better than a larger efficiency ratio.
  2. Amounts shown are in USD billions. Barclays and Deutsche Bank results are converted to U.S. dollars at the 2012 average exchange rate.
  3. Return on assets is net income divided by average total assets. Return on assets calculations are not included for the international peer group companies that report utilizing International Financial Reporting Standards (IFRS). Reported assets on financial institutions' balance sheets prepared in accordance with U.S. GAAP standards are not comparable to the reported assets on financial institutions' balance sheets prepared in accordance with IFRS. Therefore, the return on assets calculations are not comparable.
  4. Return on common equity is net income to common shareholders divided by average common equity. Return on common equity for some peers is not meaningful where they had net losses (i.e., no returns).

Conclusion

Citigroup is a turnaround story and will be for some time. The metrics in most aspects of the business are improving, but risks remain. Investors clearly do not buy the book value presented by the bank, and may not for years to come. In the long run capital ratios should continue to improve, and loan delinquency rates should continue to fall. Also of public knowledge, the bank will begin buying back its shares and raising its dividend in the next few quarters. Citi shares are a deep value play. Many are banking on buying below book value now, and selling above book five years from now.

Source: Citigroup: A Look At The Books