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June 18th Citigroup

|Includes:Citigroup Inc. (C)
JUNE 21, 2010 BY


1.)    Symbol:                C


2.)    Stock Price: 3.99

3.)    Company Name: Citigroup

4.)    Market Cap: 115.6 Billion

5.)    Book Value: 151,421 Billion

6.)    Tangible Book Value: 111,043 Billion

7.)    2010 Net Income: TTM $1,229 Million

8.)    2009 Net Income: ($1,606 Million)

9.)    2008 Net Income: ($29,416 Million)

10.) Debt/Equity: 2.91

11.) Return on Equity: 1.11%

12.)  Normalized Return on Equity: 12%

13.)  Normalized Earnings Power: $15 Billion

14.) Shares Outstanding: 17,944 Million

15.)  Normalized EPS: $.75-1.00

16.) Target Price Range: $7.5-$10

Investment Rationale: Citigroup is now the combination of Citicorp which are the healthier aspects of the old Citigroup and Citi Holdings which consists of the assets that Citigroup is trying to divest in an effort to right size the business.  The main businesses the Citi is looking to move forward with are their global transaction services, investment banking, private banking, consumer banking, commercial banking, and credit cards. Citi is unique in that they have a truly global presence and their exposure to growing international markets provides them with better growth prospects than some of their major American peers.

Citi is focusing on lowering their expenses significantly which had been growing at a higher rate than their revenue growth. This combined with some of the worst loan underwriting of all time contributed to the staggering losses that the bank has faced over the last few years. After the United States government converted their high cost preferred stock to common stock Citigroup emerged as one of the best capitalized financial institutions in the United States. The stock has been under pressure as the government is now significantly reducing their stake in the business after seeing substantial appreciation. As credit quality, specifically mortgages and credit card metrics have been improving of late we believe that the worst is over for Citi. They are likely to return to normalized earnings by 2012 and we expect them to be mostly profitable in 2010 and 2011 as they wind down Citi Holdings. If you put a simple 10 price to earnings multiple on Citigroup’s low ball .75 cents a share earnings power you have a stock that is worth $7.50. Also it is very difficult to imagine how over the long term you can lose on this investment. Citigroup has been examined, scrubbed, cleansed, by the government and regulators over the last 3 years as much as any other company, so we feel like we do have some security that Citi is being appropriately cautious in their accounting.

Interest rates are likely to stay low for the next year or two and the loans being originated have much higher return on investments, with higher credit quality, than the loose underwriting that led to the financial crisis. Citi is improving its deposit franchise so liquidity should not be an issue. Therefore we believe that Citi s a relatively low risk long term investment with upside potential of 100% over the next 2-3 years.

Investment Strategy:

Buy the stock outright at $4.05 or less.

Target Price: $7.50

Target % Return: 87%

We think Citi has a long ways to go on the upside but we think at a minimum the stock should be trading at about $7.50 within the next two years.

Primary Risk Factors: A double dip recession and extremely punitive regulatory actions by the government could hurt Citi’s prospects in the future. Citigroup has a 9.1% Tier 1 Ratio which is very high so this risk of additional dilution in the near term does not seem too high. 

Disclosure: Long C, Short Puts on C
Stocks: C