Citigroup's Q2 Earnings Reaffirm My Prior Projections

It's that time again. Our quarterly look at Citigroup (C) and how my breakup analysis is holding up. Citi reported a second quarter loss of $2.5 billion last week, halving its $5 billion first quarter figure. Due to continued writedowns and credit loss reserve building, it remains difficult to project what kind of profits Citi could have in a more normal environment.

That said, one way to look at it is to calculate Citi's net income by segment before accounting for asset writedowns and credit provisions. Here are some figures for Citi's 4 main businesses:

Citigroup - 2nd Quarter by Segment

Net Income/Reserve Build/Income ex reserve build

Global Credit Cards: $467M /$582M /$1049M
Consumer Banking: $(700m) /$1657M /$957M
Institutional Banking: ($2044M) /$367M/ ($1677M)
Wealth Management: $405M /$41M /$446M

The Institutional segment remains hard to project due to $7.2 billion of pre-tax writedowns for the quarter. The other segments, however, are tracking very close to my previous estimated ranges at ~$8 billion per year for banking and ~$2 billion per year for global wealth management. Institutional probably winds up in the $2-$4 billion annual range ultimately, which would peg Citi's annual earnings at between $12 and $14 billion.

Assign a 10 to 12 multiple on that and you get fair value of between $120 billion and $168 billion, or $21 to $29 per share, versus today's price of around $20 per share. In order for Citi to get back to the good ol' days of earning $20 billion+ annually, it appears the economy would have to improve markedly, but that environment is likely several years away at least.

Full Disclosure: No position in Citigroup at the time of writing

Comments

[Emerald]

Fair analysis and corect it will take at least three years to regain good earnings momentum. Hoevere, at $20, this is a grat buy for patient money.

[Richard Wendling]

Your analysis is flawed in the fact that C didn't beat estimates for the quarter. 90 days ago they stated that hey would make a profit of $.59 a share and when they reported they made -$.56, or a net loss of $1.16 according to my calculations. The only reason they beat estimates is because they were dramatically reduced several times. This allowed the specialist system to manipulate the stocks price to their advantage.

For more information on how this all works click on my site and read how the system works and also my latest report on C. It is all free. It will only cost you the time it takes to read the documentation.

Richard