Wow, it certainly is a volatile market if you aren't long the broader indexes and their tracking ETFs, like SPY (NYSEARCA:SPY). While the market moved markedly higher last week, the financials, including Citigroup (NYSE:C), failed to rally.
Citi opened the week at around $34 and ended the week flat despite a nice move up the S&P 500 and most of the broader indexes.
Despite the recent sell-off, Citi shares have still outperformed the broader indexes by a fairly wide margin this year.
Citi sold-off at the end of the week on the story that the Fed had rejected their nearly $10 billion buyback plan on Friday, which came after shareholders rejected Vikram Pandit compensation plan on Tuesday.
While this story was interesting, it is still worth remembering that Citi's balance sheet held up under the two Fed stress tests over the last two years, and the company's plan to initiate a dividend several years was approved even while Bank of America's (NYSE:BAC) dividend increase plan was rejected. Citi also had enough capital to attempt to acquisition of Wachovia.
Today, since the recent recession and financial collapse, central banks and governments are mandating historically high levels of tier one capital and other collateral as recommended at during with the Basel accords.
With Citi the best positioned U.S. bank to benefit from an accelerating global economy, and the company today having few balance sheet worries of significance, I think the recent sell-off sets up a nice opportunity for trader or investor to initiate a long position.
Indeed, while Citi and JPMorgan's (NYSE:JPM) earnings reports didn't get a lot of attention last week, their fundamentals were strong. Both reported nearly 7% gains in credit extended, as well as an increase of nearly 10% in debit card transactions. Given the U.S. economy still gets over two-thirds of its GDP from consumer spending, this data was particularly encouraging.
Citi is by far the biggest consumer bank in the U.S. with significant international exposure, other than Bank of America. Citi also has the most exposure to Asia of all the U.S. banks, with a strong presence in China, and a particularly strong retail franchise in India.
While I've already discussed this in several previous articles, the recent trade data, housing numbers, and comments from shipping companies, the recent economic data suggests that China's economy is beginning to recover at a faster pace.
Citi has continued to report strong numbers in Latin America, where noted Executive Eduardo Cruz has done great job building the company's retail franchise in this region, Citi has already been consistently reporting mid-single digit gains in loans for some time.
Finally, while Europe remains weak, their is increasingly bullish talk on increased merger and acquisition activity occurring in this region in the back-half of the year. Citi has also reported very manageable levels of exposure to sovereign debt concerns in Europe, and most estimates put Citi's total net exposure to European debt has been stated by executives to be around 10-12 billon.
To conclude, while Citigroup today gets over two-thirds of its revenue abroad, the company's large exposure to the Asia and the eurozone has hurt its earnings in the short-term. While Europe may remain weak for some time, Citi is well positioned for a moderate to significant recovery in Asia.
With stocks like Apple (NASDAQ:AAPL) and IBM (NYSE:IBM) up enormously over the past year, the financials may be a good place for institutions to rotate to during a summer season that has been historically weak for tech stocks.