Citibank: Book Value Highlights New Growth

| About: Citigroup Inc. (C)

There has been so much negative news about Citibank (C) in the past few years -- justifiable news at that. Seeing its stock as an attractive buy seems almost absurd. But maybe it's time to re-think that notion. The tide may be turning at Citi, and it's possible that too much fear has kept the stock price down despite positive movement at the banking giant. There are analysts out there ready to place bets on the company. They are guessing that maybe in a couple years, when the economic horizons are brighter, they'll look back and say, "I told you so."

A lot of the optimism has to do with the bank's book value. Citi's tangible book value per share stands at $50 for the first quarter of 2012. The current value marks a 24.45 percent increase from a year ago, when it stood at $40.90. The tangible book value per share is a good indicator of a company's liquidation value, or the amount of money a shareholder would receive if a company went under and its assets sold. It's a figure based solely on accounting and gives a pretty accurate picture of a company because it does so without all the distraction of investor sentiment.

From the perspective of TBV, Citi stock is a bargain compared to its large-bank competitors, which have tangible book values in line with its respective stock price. Citibank Holdings, a subsidiary of Citi, is still racked with toxic assets. Improving TBV/share alone is enough to divert investor sentiment from the positive to an ugly truth about Citi: There's still a lot of toxicity at the banking giant. Troubled Bank of America's (BAC) tangible book value per share in the first quarter is $11.91. The U.S.'s second-largest bank reported a 32 percent decrease in net revenue for the first quarter to $653 million. Despite marking a decrease, the bank is moving on with plans to shore up its books by shedding assets and employment. So far, 2,400 jobs have been shed of the 30,000 planned cuts before the self-imposed austerity measures are through. JPMorgan Chase (JPM) reported a TBV/share of $32.22. Despite the recent loss of $2 billion in a botched investment deal, analysts are optimistic JPMorgan profits will rise in the second quarter. According to Zachs Investment Research, earnings for JPMorgan and all banks are expected to increase by 41 percent in the second quarter. Wells Fargo (WFC) reported a TBV/share of $17.62 in April while revenues beat analyst expectations, up 6 percent to $21.64 billion. These are the highest revenues the bank has seen in two years.

Some of the reasons for Citi's increased tangible book value is its investments in emerging markets. According to Citi's first quarter results for 2012, its Global Consumer Banking division increased its revenues to $10 billion. The division, which is one of the largest sectors of the bank, has benefited from working in emerging markets around the world in both Asia, Latin America and Brazil. The international bank has more than 200 million accounts in 160 countries and jurisdictions. Included among its assets is Banamex, the Mexican bank Citi acquired back 2001 for $12.5 billion. Now Banamex supplies roughly 12 percent of Citi's net profits. The Mexican bank has provided the diversification needed to cushion the blow of the financial meltdown of 2008. More recently, Citi reported that net revenue from all Latin American holdings was up 6 percent compared the first quarter of 2011 and 5 percent in Asian markets in the same time period. Citi also has significant holdings in Europe, which can be seen as both a positive and a negative. This presence exposes them to the financial difficulties gripping Europe. It also allows Citi to pick up potentially profitable units from companies looking to sell off assets. For example, Citi purchased a third of the shipping loan portfolio of French Bank Société Générale SA (SOGN) for an undisclosed price. The French bank has been pressured to unload riskier portions of its holdings, which includes investments in the troubled European shipping industry. It has been reeling from the economic slowdown in Europe. Citi, on the other hand, wants to be in the right place when the economic radar picks up on brighter economic horizons.

In addition to its international footprint, Citi is expected to report earnings between $12 billion to $13 billion in 2012, despite mounting legal costs, a sputtering economy, loan losses, and a recent downgrade by Moody's Investor Services. This profit margin is due only in part to its international largess. There are also other positive developments such as Citi's successful strategy of focusing on its more core products. Citi reported a 6-percent increase in revenues while expenses grew only 1 percent. Its loan portfolio grew at a rate of 12 percent, up 7 percent on the consumer end and up 23 percent on the corporate end. Another trend backing up its recent success is the continual wind-down of Citi Holdings, which was created to divest itself of nonessential businesses and assets. For instance, Citi recently agreed to divest another 14 percent of its Smith Barney assets to Morgan Stanley. A Citi spokesman said Smith Barney was among its several non-core assets that had to be unloaded and is one that still has value.

There is still plenty of fear as well as bad news pinned to Citi. It is most definitely holding the stock in check. The financial crisis was a disaster for the company and like the boy who placed a tack on the teacher's chair, the banking giant has a long way to go before its deeds can be forgotten. You could see more ramifications of the financial crisis at the April shareholder meeting in which 55 percent of the shareholders voted against a compensation package for Citi CEO Vikram S. Pandit worth $15 million. The vote was clearly a message of sorts from a public angry at executive pay, particularly in light of the scarlet letter it wears after the financial meltdown. Since the collapse in 2008 and 2009, investor confidence in Citi has been crushed. Even good days at the corporation will be overshadowed, possibly for years to come.

That being said, buying Citi stock may not be a bad idea. This is especially the case if you have funds you can afford to let marinate for a while. The company has presented some solid numbers in several aspects of its business. And the company still has enormous international reach, particularly in emerging markets. If that's not enough, Citi just hit its 200th birthday. Longevity breeds stability and cheap Citi stock may be a nice way to celebrate.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.