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Will Jane Fraser Fix Citigroup's Problems?

Mar. 01, 2021 10:24 AM ETCitigroup Inc. (C)BAC, DB, JPM, MS27 Comments
IP Banking Research profile picture
IP Banking Research


  • Details are leaking relating to Citigroup's refreshed strategy under the new CEO.
  • Pivoting to wealth management in Asia has already been communicated.
  • Shedding off some global consumer business is on the cards.
  • Will new CEO Jane Fraiser able to fix this perennially underperforming bank?
  • In my view, the litmus test is the sale or retention of the Mexico consumer bank.

As many of my readers would know, I have been arguing for several years now that Citigroup's (NYSE:C) business model is seriously flawed and an urgent strategic overhaul is required. For me, Citi, in recent years, has been a trading position as opposed to long-term investment. Of course, I would not refuse a trade when Mr. Market gifts it at a fraction of the tangible book, but I will quickly sell when it reaches above tangible book. As further context, this article summarises my playbook for trading Citi.

Currently, Citi trades at 0.9x tangible book and well below peers such as Bank of America (BAC), JPMorgan (JPM) or Morgan Stanley (MS) who trade at 1.7x tangible book and above.

The problem child is quite clearly Citi's sprawling and inefficient Global Consumer Bank ("GCB") division. If anything, the key reason for investing in Citi is the wide moat of Citi's investment and institutional bank otherwise known as the Institutional Client Group ("ICG").

The good news for the long-suffering shareholders of Citi is that changes appear to be on the horizon. These have been summarised in this Wall Street Journal article noting of course that these are "informed" leaks and not necessarily the final say.

The new CEO, Jane Fraser, is now in the box seat and has promised to take a "dispassionate" review of the Bank's strategy anchored by what she wants Citi to look like as opposed to being solely driven by near-term financial metrics. Based on the WSJ article (as well as this Bloomberg article), Citi is looking to dispose of a number of consumer bank franchises in Asia but is inclined to retain the large Mexico operations of Citibanamex.

That is certainly progress - but will this be enough to move the dial on the investment case?

Citigroup Inc. Latin America CEO Jane Fraser Interview

Photograph: Rodrigo

This article was written by

IP Banking Research profile picture
Independent banking research focuses on financials, deep value, special situations, and financial arbitrage. Agnostic and apolitical approach for scouring the earth for durable and uncorrelated cashflows that work well in both inflationary and deflationary settings.See my tipranks profile below:https://www.tipranks.com/bloggers/ip-banking-researchTo benefit from independent insights and quality analysis from a banking insider - subscribe as a "real-time" follower above.

Analyst’s Disclosure: I am/we are long C, BAC, JPM, DB. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

Jane Fraser will take C to a new 10 year high share price record within 24 months. She’s going to be a champion.
Michael Burry, of “ The Big Short” fame recently published that C is one of his largest holdings. Mine as well.
I’ve written $85-90 calls in about 20% of holdings- I feel we’ll see C at about
85 by year end. Planning to buy more if it drops back to 64-65, but I doubt
it...Good luck all.
Thanks to the author for his insightful, informative article.

Long C
IP Banking Research profile picture
@obiwan48 thanks for comments and good luck.
Siyu LI profile picture
Appreciate your insightful take on C. Was debating whether to sell some cover calls as it approaches 70. end up not doing it - life is a long gamma is not it?
IP Banking Research profile picture
@Siyu LI haha....it certainly is. Momentum will probably carry Citi higher for now. I am still waiting for the full strategic picture to be apparent. It is still very cheap compared to peers and absolute terms. So will give it the benefit of doubt for now.
@Siyu LI
Hi there Siyu. Saw your posts about writing covered calls on C as it approaches 70. One thought about writing a call, I wouldn’t underestimate
how much C could uptrend this year. I wouldn’t set my strikes to close in.
I have some calls written. Most are 85-90’s for Jan 2022.
I had also sold some 60 puts, but recently covered as there was more upside available in just buying more C, and writing a 85 call.
Good luck.
Siyu LI profile picture
@obiwan48 thx for sharing your strategies!
01 Mar. 2021
I very much doubt they will sell Mexico. The demographics are attractive and will be a key source of scare revenue growth for C. Selling it and investing into its US franchise would see revenue growth evaporate in my opinion
IP Banking Research profile picture
@lhtl2012 I agree that it is unlikely. However, I do think it is the correct decision. It can be sold for well above 2xTBV.
If she realizes banking as we used to practice it and how we interacted with it has completely changed under everyone's feet, then C might have a chance.

But if she and C management keeps slow playing the inevitable full digitization of all we do (which C has been slow playing too long now), C will be an irrelevant footnote in 10-15 years imho. And so will many other banks you see shaking on their stilts today except for the ones who see what is coming (i.e.. JPM, SCHW, etc).

The starting gun went off 12-18 months ago: place your bets ladies and gents, when looking out over the next decade. Need a divvy stock for the next several years? C isn't bad. Want a company who's going to be part of the digital future of both money and how we interact with it, then I'd beg off C and look elsewhere (like V, MA, PYPL, SQ, etc, etc).

The best of fortune to us all
IP Banking Research profile picture
@D. Rider for Citi the moat is on the corporate/institutional bank and especially the payments in TTS.
A remarkable individual. If you're familiar with her track record within the company, she was born for this. Camera hog? Rumor is she turned down the runway for banking. High hopes and expectations here.
brightlake profile picture
Thanks, IP, for another insightful article on C. The word “dispassionate” seems to indicate that Fraser will make changes to business strategy. Hopefully she moves with force and speed.
IP Banking Research profile picture
@brightlake yes absolutely. I do think she will keep Mexico though - she ran the franchise for a while. I am more interested though in the rationale of the strategy. Interesting times ahead...
Rex Rode profile picture
She will just as Mary Barra has "fixed" GM, and Lisa Su has transformed AMD! I am incredibly inspired by all three of these women! They are true visionaries!
IP Banking Research profile picture
@Rex Rode women in leadership positions have done quite well.
Let's see!
George Spritzer, CFA profile picture
A good number to track is how many new managing directors are appointed every year. In 2020, there were 153 appointed, up from 139 the year before. In order to reduce the $22 billion a year paid in employee compensation, they need to drive this number well below 100 a year.
I worked for Citigroup 15 years ago, and it is a good place to work for the employees (especially Director level or higher), but not so good for shareholders. When I left, the stock was around $500 a share (adjusted for the 1-10 reverse split). Since 2006, employee compensation paid out has been around $300 billion which far exceeds the current market cap.
@George Spritzer, CFA As the bank has slowly changed in recent years, becoming more like a utility company, they have taken more the L'Oreal approach (as did many banks). They pay with titles but packages of 1st year MDs are lower. The importance is keeping payrolls in check while remaining competitive, number of MDs arent a problem
RickJensen profile picture
VP titles are free! Then you get to pay them.
RickJensen profile picture
I REALLY hope she can get some traction. I sold out after they did the 1 for 10. If you have to lie to potential shareholders about your history, you aren't for me. RSes are a function of covering up old sins. And next to WFC, C, is still hoping for that white knight to come riding in.
It's takes a Bob Benmosche to fix these types of issues. Not some flashy, camera seeking CEO. You will never get a better one than Big Ben. I'll never forget what he did for my AIG. They broke the mold with him.
I hope for the best, but history is not kind to C.
Infrastructure is so old and difficult to replace.

Is is fixable?? Not sure
IP Banking Research profile picture
@1582 you probably want to start from "new". put in the most modern infrastructure/IT systems. It costs alot but there is a payback.
Thank you for the article.
Tim Travis profile picture
Agree on all points. I think ALLY Financial would be a synergistic opportunity for Citigroup to buy if regulators would allow it, particularly upon the sale of the international global consumer franchises. Would have been nice at a much cheaper price, but still relatively inexpensive given the opportunity and it would add Citi's attractive credit card franchise to be sold to ALLY's customers. ALLY already expressed interest in credit cards through their nixed acquisition of a subprime platform last year. Always great articles IP.
IP Banking Research profile picture
@Tim Travis interesting idea....I do think that is the next logical step. Inorganic opportunity. If you tell the Fed, I am selling Mexico/Asia and buying in the US - there will be much less resistance.
"Will Jane Fraser be able to fix Citigroup's problems?" If Jane doesn't, Tarzan will.
How about Cheetah? 😂
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