Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Citi's 20% Potential Growth For 2013

|Includes: Citigroup Inc. (C)

Citigroup Inc. (NYSE:C) is broken down into two major business segments: Citi Corp and Citi Holdings. Citi operates in four main regions, North America, EMEA (Europe, Middle East and Africa), Latin America and Asia. Citicorp represents the Global Consumer Banking and Institutional Clients Group, while Citi Holdings is comprised of the Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool. Citi Holdings represents 8% of the balance sheet and has been a laggard for Citi, as it only contributes 5% of the earnings. They have been slowly unraveling the loosing assets that are under Citi Holdings to allow for accelerating income and returns.

As for the financial sector it is seeing higher interest rates, though most of their earnings calls have warned about compressing spreads. We have seen increasing mortgage growth across the North America regions, and deposit growth worldwide. As employment in the United States has picked up we see delinquency rates across all loans diminishing. Emerging markets that are experiencing growth are seeing higher levels of debt growth as past conservative generations fade and younger generations experience explosive growth.

As earnings have been reported, many money center banks have missed on the top line numbers, while their bottom lines have been meeting or exceeding expectations. Citi missed both top and bottom line, but luckily for Citi they did experience increasing NIM's which was a contradiction from the majority of money center banks. Their miss on top and bottom line may have largely been caused by the restructuring from the previous CEO's strategy; furthermore, along with their billion dollar restructuring they incurred higher than normal litigation costs and thus have stashed more money into their reserves as a hedge for future litigation. But I think this was because the CEO, Mr. Corbat, wanted to keep expectations of their future earnings low, until they could produce better returns.

Citi's new CEO, Michael Corbat, outlined a new strategy as he entered his role, back in 2012. Mr. Corbat laid out his three stage plan: focusing on bettering their core banking businesses, optimizing and improving efficiency, lastly reducing Citi Holdings. Based on their expansive commercial and institutional loans and deposits, Citi will be leveraging their position in the fastest growing markets; Latin America and EMEA (Specifically Mexico and Europe). In the past we saw branch openings increase in Latin America, which they have yet to penetrate certain markets (Chile and Bolivia). In Europe they have yet to get into smaller markets, but they are pretty well developed in the region, and may have to look to strengthening their relationships in the region. When it comes to improving their efficiency, Citi's expansive exposure to 160 countries and jurisdictions, has overly exposed them to costly operations. The initial portion of their efficiency strategy began with slashing jobs, 4,000 in 2011 and 11,000 in 2012. The efficiency strategy was further enhanced by placing operations and technology under the Global Consumer Banking segment to leverage their back office operation and enhance their performance. The final stage of the strategy is the continual reduction of Citi Holdings because of the continual drag on income and returns.

As for the future, many banks like Citi expect the US economic environment to remain optimistic, continuing loan growth and deposits, and as said before. The compressing credit spreads could still be a mainstay in case yields and rates don't go up. Citi announced in their earning call guidance, that they expect the same rate of release of reserves as last year for their credit cards, though they expect to hold more for their litigation expenses. Citi also expects to gain of $900mn in savings in 2013, which has been planned via their 2013 budget. Their lower revenue generating division, Citi Holdings, will see a continual unwinding of their assets though not at the $10 billion pace it was for the last couple of years, as market data shows a resurgence in this divisions' non performing assets. The restructuring of Citi should open up opportunities for them to outperform in the future as rollout their new strategy bringing them cost savings and revenue growth.

Citi has a lot to offer as a restructure play being that it touches many emerging markets and is exposed to many growth markets. In the current financial environment we can see it taking advantage of these growth markets. Their current strategy has yet to fully play out as they stated they believe that the streamlining process will take several quarters. Their focus on certain markets will further develop as they hone in on fast growing markets and how to enhance their exposure to these areas, which will in-turn increase top line numbers. The inefficiencies of operations at Citi that Mr. Corbat intends to correct, by following the 2013 budget and continuing cost cutting measures, will lower costs and raise bottom line numbers. I believe that with this new strategy coupled with a strong management team will result in positive EPS growth for Citi in the coming quarters.

Since most of the money center banks have been retracing their valuations back to tangible book it seems fully plausible that Citi will follow this trend. Taking in consideration its tangible book at 54.29 we could very possibly see a 20% increase from its current trading price by the end of the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.