Citigroup (C) is an appealing asset for investors that want a financial asset with potential for capital appreciation. Citigroup has favorable metrics compared to its peers, while it's working to effectively improve its financials and corporate portfolio. Recently, Citigroup's stock has outperformed its peers, and it may see the most momentum as the mortgage market and eurozone begins to stabilize. Citigroup has made investments ranging from improved algorithms, credit cards in China, and strategic investments, alongside continued divestments from the Citi Holdings portfolio. Current shareholders should hold long term, and interested investors may benefit from an opportune entry point at third quarter's end, when earnings could decline based on regulatory approval of the Smith Barney divestment. Thereafter, future projections look strong for Citigroup as it focuses on mitigating risks and expenses, while adhering to core-operations.
According to the most recent earnings release, Citigroup's second quarter revenues, net of interest expense totaled $18.64 billion, decreasing 10%, YOY. Total net interest revenue was $11.59 billion, decreasing 5%, YOY; non-interest revenue totaled $7.04 billion, decreasing 17%, YOY. Citigroup's penetrating expenses, totaled $12.1 billion, decreasing 6%, YOY. Provisions for credit losses totaled $2.80 billion, decreasing 17%, YOY. Citigroup's net income totaled $2.94 billion, decreasing 12%, YOY. Citicorp revenue totaled $17.71 billion, decreasing 3%, YOY; net income totaled $4.33 billion, increasing 6%, YOY.
North America RCB revenue increased 4%, while decreasing 11% in EMEA. North America Securities and Banking revenue decreased 9%, while it increased 11% in Latin America and 8% in Asia. North America RCB net income increased 8%, while increasing 41% in Securities and Banking. Total Securities and Banking net income increased 20%, YOY. Institutional Clients Group net income totaled $2.34 billion, increasing 20%, YOY. End of period loans totaled $537 billion, up for the sixth consecutive quarter, increasing 10%, YOY. Corporate loans increased 22% and consumer loans increased 2%. Investment banking revenue decreased 21%, YOY due to lower debt and equity underwriting revenues. Transaction services revenue totaled $2.8 billion, up 5%, YOY.
Citigroup did cite that third quarter earnings may be impaired from a charge due to the divestment of its 49% interest in the Morgan Stanley Smith Barney joint venture. Net interest revenue was down due to declining loan balances in Local Consumer Lending in the Citi Holdings segment. Non-interest revenue was down from the absence of returns from reclassified held-to-maturity securities and other assets in Citigroup's Special Asset Pool sold during 2011. Citi Holdings' revenue totaled $924 million, decreasing 62%, YOY; Citi Holdings had a net loss of $920 million, down 39%, YOY. Brokerage and Asset Management revenue totaled $87 million, increasing 85%, YOY. Total operating expenses for Citi Holdings decreased 25%, YOY.
Moody's has already published a report citing that Citigroup's agreement to take a lower valuation for its 49% stake in the Smith Barney venture will be a credit negative. The agreement is writing down the 49% stake to $6.6 billion, around 40% less than Citigroup's valuation. Regulatory approval will result in a $4.7 billion charge on Citigroup's third quarter earnings. This creates an opportune entry point for interested investors wanting to buy Citigroup. The market will react from the short-term earnings decrease and a weak third quarter, but ultimately the divestment favors Citigroup for the long term. Since the conception of Citi Holdings, Citigroup has been able to reduce assets by more than $600 billion in order to focus on the core-operations in Citicorp. Upon regulatory approval, all phases of the divestment should be completed by June 2015, at the latest.
Citigroup recently received approval from the EU to divest the EMI assets it took over in 2011 to UMG. Citi was able to recoup its investments by selling EMI's music division to UMG for $1.9 billion and the publishing division to Sony (SNE) for $2.2 billion. Citigroup took over EMI in February and has been working to make a sale since then; the Sony deal was approved by the FTC in July 2012. UMG has to sell assets accounting for 30% of EMI's global revenue, but it will still have 40% market share in Europe after the sell.
There's good reason to be bullish on Citigroup as the mortgage sector recovers. Citigroup's cost for mortgage buybacks only totals $3.49 billion, compared to Bank of America's (BAC) $32.1 billion cost. Both JPMorgan (JPM) and Wells Fargo (WFC) are paying over $6 billion. Citigroup is heavily leveraged in capital markets and may benefit as sentiment improves in the housing sector. Citigroup currently is fifth among the banks, holding 3.8% market share. Many feel Citigroup's discount is mainly due to its mortgage exposure; it wrote off 2.1% of its loan in the second quarter 2012.
There are other reasons to be bullish on Citigroup as well. It continues to reinvest in organic growth as it recently announced enhancements to its Dagger algorithm to improve accuracy and responsiveness for greater liquidity in high-frequency markets. Citigroup also recently made an investment in Square, a mobile payments innovator service that focuses on simplicity and transparency. Citigroup also recently unveiled its sole-branded credit card that will be available in 13 cities that Citi operates in within China. This will be the 15th market that Citi has a credit card in within Asia. Citigroup projects China will be the largest credit card market worldwide by 2020.
Bank of America, Wells Fargo, JPMorgan and U.S. Bancorp (USB) are the major banks most comparable to Citigroup. Citigroup has outperformed the S&P, the Dow Jones, and all of the aforementioned banks in the three months. Citigroup stock has increased 13.1% in the past month, outperforming all of the banks by at least 300 bps. Aside from Bank of America, Citigroup currently has the lowest price per share. Citigroup's $3.45 EPS is higher than U.S. Bancorp's $2.71, Wells Fargo's $3.03 and Bank of America's $0.92. Citigroup's 9.7 price-to-earnings, 1.3 price-to-sales and 0.53 price-to-book ratios are the lowest among these banks. Citigroup has the highest beta score and its average daily volume is 34.7 million, trailing only Bank of America's 133 million. Citigroup's relative volume is around 1.1 and its price has increased 18% since its last earnings release. Citigroup is currently trading around $32, between a 52-week range of $21.40 and $38.40. I think it will be trading closer to $36, or roughly 10% higher by the end of 2012.