- Citigroup's strong first-quarterly report was stymied by Banamex.
- Citigroup completed repurchase of common stock for 2014, but expect more debt reduction with the excess cash.
- Citigroup to continue applying DTAs to enhance quarterly reports.
- Citigroup is a buy and hold recommendation for a two to five year gain.
Citigroup Inc. (NYSE: C) has been a mix of reports in 2014, as the first-quarter report of business operations were excellent, the Federal Reserve's review of the Capital Plan was initially denied and modified, which came on the heels of the report of Banamex fraudulent loans still under investigation. As China's economy is creating a 'new' normal, China itself, as well as the rest of the world's economies are adjusting. China is not likely to see the stellar double-digit growth overall, but is still moving forward in the 7-8% range.
Citigroup capital plan initially consisted of a $6.4 billion common stock repurchase program through the first quarter of 2015 and an increase of Citi's quarterly common stock dividend to $0.05. The Feds and Citigroup agreed to lower standards of a $1.2 billion common stock repurchase program and a common stock dividend of $0.01 per share per quarter.
On April 23, 2014 Citigroup announced to repurchase $1.165 billion of common stock. This is within the capital plan the government approved during the Comprehensive Capital Analysis and Review (CCAR) earlier this year. This is possibly the year's buy back of common stock.
On May 19 2014, Citigroup announced to purchase nine series of outstanding notes totaling near $2.6 billion in principle. In 2013, Citigroup redeemed U.S. $12 billion of securities reducing Citigroup's overall funding costs. Citigroup was not restricted in the repurchase of preferred stock or other debt instruments. We could see further buy backs as Citigroup has excess capital and wisely reduces its debt.
On April 14, 2014, the company reported first quarter's earnings of $1.30 per share, which beat the consensus of analysts' estimates by fifteen cents. The report was positive and showed positive growth in some areas, flat in others, and reduced Citi Holdings further during the quarter as the company continues to sell off unwanted assets in a positive manner. Citi reported some stellar numbers including the earnings, but the book value is listed at $66.25, while the stock price will open at $47.76 on June 3, 2014. This is a price to book ratio of .72, which usually notes a good position to buy, but with other considerations, the price will probably hover around this price point for the rest of the summer. The 52-week high and low are $55.28 and $45.06, and we do not expect the price to vary from this range.
Citi also recouped $1.1 billion of Deferred Tax Assets for the quarter, and will continue applying DTAs each quarter moving forward. One way Citigroup could accelerate the use of the DTAs would be to purchase additional assets, similar to the Best Buy credit card portfolio, which quickly gained consumer loans that drives stronger profits. Citigroup has the capital to make these types of investments, but it must be a solid, profitable move before Citi closes the deal.
The company dividend has been $0.01 per quarter for 13 quarters dating back to May 2011. The company paid no dividend from February 2009 through April, 2011.
Of the 6 large banks in America, Citigroup is most diversified financial institution across the globe in 160 countries and heavily tied to the Pacific Basin Markets. It is tied to the global markets more than just the U.S. markets like the other 5 banks. It is however, vulnerable to operational challenges and international politics and war that can effect operations, by the freezing or freedom of assets that affect other markets and the opportunity Citibank has of doing business.
Citigroup's Mexican unit, Banamex, is facing criminal charges over $400 million in alleged fraudulent loans. Citigroup has fired 11 people involved, including four managing directors. The firings came after a corporate announcement in February that Citi had discovered possible loan fraud concerning invoices linked to Oceanografia, a contracting firm that does business with Mexico's national oil company, Pemex.
In my last assessment of Citigroup I stated, "We believe Citigroup will continue to post solid returns through 2014, and although will not pay above the $0.01 per share dividend, we should see a strong appreciation in the stock price and book value through 2014 and into 2015. A 10-15% stock value increase is likely in 2014. Citigroup's current stock price at the open on April 21, 2014 is $48.22, and a consensus end-of-year price is targeted near $55." You can see the full article here.
I will retract/adjust my previous assessment and state: We believe Citigroup will continue to post solid returns through 2014, and although it will not pay above the $0.01 per share dividend, we expect the stock price to remain between $47 and $55 for the rest of 2014 and into 2015 as the market and investors await the outcome of the Mexico fiasco and the next round of Basel III requirements for 2015. When Citigroup gets to increase its dividend and proceed with its capital investment plans unimpeded by the government Citigroup's stock will have a true appreciation in its stock price.
We recommend Citigroup as a buy and hold for the stock appreciation we expect in 2015. Citigroup is growing stronger each quarter and investors will benefit over the next several years. Citigroup is much stronger today than prior to the financial meltdown in 2007-08.