Citigroup's Capital: Earnings Preview (Video)

| About: Citigroup Inc. (C)

Summary

Citigroup has a lot in deferred tax assets that could cause headwinds.

They are on the low side in terms of predicting interest rate hikes.

Corbat has done a good job in diminishing Citi Holdings.

Citigroup's (NYSE:C) current CEO, Michael Corbat, was once the president of Citi Holdings. Citi Holdings is the destination for all of Citigroup's bad assets. Despite once leading the segment, Corbat has been making Citi Holdings a much smaller piece of the total pie. He has been very focused on staying in line with regulators.

With Trump talking about lowering corporate taxes and the leaning toward higher interest rates, investors see a huge catalyst for jumping into financials. This is especially true with Citigroup, as they trade at a discount to tangible book value. However, this is not necessarily a no-brainer. They currently have $16.80 a share in deferred tax assets. If they use a lower tax rate, then they must write down those assets. Citigroup will not be able to deploy as much capital with reduced assets due to regulation. This is a solid headwind in a seemingly optimistic future.

Citigroup also predicted no rate hikes this year and only one during 2018. This prediction did not falter even after the Fed hiked the interest rate earlier this year. It looks like they are placed in a position to only be able to surprise to the upside. While this obviously benefits them, it may cause investors to distrust management in the long run.

Disclosure: I am/we are long C.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Money Center Banks, Earnings
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