Banks are in some sort of flux still as they are trying to recover from the debacle that they caused a few years back. Although there are signs of recovery, the prognosis is that it is going to be a while longer before everything goes back to the way it was before. Companies like Citigroup (C) can expect sluggish times ahead for now.
One of the best ways to make sure that you can bounce back as a company is to head to unsaturated waters. That is a proven theory: if you cannot make it in a place where the market share is all cut up, go somewhere else where the income is more attractive. That is probably why Citigroup thought it was a good idea to head into China, but that has more or less gone down in flames as China is giving more importance to its own banks, giving them the ability to make more loans for companies that are building investments there. This is after they promised that they would open their doors for other companies. Should this worry investors? Yes. However, worry more for the sector in general instead of just Citigroup. All investments are going to China and if the Chinese are trying to low ball everyone and give most of the pie to their state controlled banks, then the big names are going to lose out. Would this make Chinese banks attractive to own? Probably, but this might just be a blip for now.
This is especially worrisome when you take in the consideration that Citigroup has other fish to fry. If it cannot go east, it appears that it will go south. South America, that is. It is one of the biggest names in Latin America and it plans to provide the import and export community there the opportunity to do better business with China by extending letters of credit in the local Chinese currency, easing trade since they can now do business with the Chinese without the need for annoying conversion rates.
It is also making strides in Europe as well, lending something like $35 million to a Romanian-owned utility company. This is a bit risky given what is going on in the EU situation right now, but no one made money sleeping on it, and this move might pay dividends to Citigroup in the near future.
One of the things that might worry some people who have had nightmares when you mention the term derivatives is the fact that Citigroup, along with some of the other big names (which we will mention later) have some of the biggest derivatives assets and liabilities, almost two-thirds of the market, according to Fitch Ratings. This is relevant because the new rules for derivatives trading are almost out, and this might change the game (and the fates) of each of the companies.
That is probably why it is a good idea that Citigroup is trying to expand its reaches, turning to ID Proofing investments now. It is going to issue identity cards to the U.S. Department of Defense and expand from there. The expectation is the profits reaped from this venture are going to be huge, if it gets off the ground floor, that is. Investors should keep an eye out to see what happens for Citigroup here.
Speaking of keeping an eye open, it might be a good time to see how the rest of the market is doing. Wells Fargo (WFC) is on the warpath, taking 13 of its competitions' advisers and hiring them. Not bad when you consider that, these advisers were responsible for a combined $1.5 billion in client assets. This will be a boon for them and might perk up investor interest.
JPMorgan Chase (JPM) is busy acquiring as well. It has agreed to pay $178 million for a 5% stake or thereabouts in Grupo de Inversiones Suramericana SA's asset management unit. This may be a move toward something bigger looming on the horizon, so stay tuned there. The company could use the foreign leg-up, as its name continues to get sullied in America.
Goldman Sachs (GS) is going to allow the public to hear its conference call as it discusses its second-quarter 2012 financial results. This is interesting if only because of the fact that people will be able to hear what it has done and what it plans to do in the coming third quarter. Banks rarely allow for such transparency, it seems, so Goldman Sachs is looking to open its windows and let some of us peer in.
Last but not least on this mini roundup, Mitsubishi UFJ Financial Group's (MTU) subsidiary Union Bank, N.A. has just hired Robert Jones to head the Aerospace & Defense unit of the bank, which deals with companies in that industry. Jones is someone who will contribute much to the program having had a whole lot of experience dealing in the field and will be a big asset for the bank and will surely make investors happy.
This is not saying, of course, that investors are not happy with Citigroup. If anything, it seems like they are being complacent with how the company is right now. This misplaced (or seemingly misplaced) complacence might be dangerous in the future, but it seems like investors are willing to go as far as Citigroup is taking them. As of right now, though, it is not taking them very far. After a little shuffle of the top brass, it finds itself trading down.
Maybe a reason why investors are so keen to invest in Citigroup is the fact that it is pulling off moves like this - selling funds to Japanese banks to hedge against the risks that the government bonds have right now. This is a move in the positive direction for Citigroup because it allows it to build up on capital against Japanese bonds so when the yen recovers it is in a good position financially.
I recommend buying Citigroup now, while it is trading at a discount, because you may not get a better opportunity in the future.