Citigroup: Strengths, Weaknesses, Opportunities, Threats

A SWOT analysis -- a look at strengths, weaknesses, opportunities, and threats -- is a good way to evaluate a company's business operations. Citigroup (NYSE: C  ) , the baron of the big bank bailout brigade, was one of the firms at the center of the U.S. financial crisis. Lately, there have been signs of improvement at the big bank and we'll put it under the SWOT spotlight for a closer look.

Strengths:

  • Six consecutive quarters of beating or matching earnings estimates; profitable for the last two. Two quarters hardly proves a turnaround, but it has to start somewhere.
  • Credit losses declining for four consecutive quarters.
  • Mortgage and credit card delinquencies starting to decline.
  • Tier 1 Capital ratio of 12% is well above the regulatory threshold.
  • Trading below tangible book value while peers JPMorgan Chase (NYSE: JPM  ) , Bank of America (NYSE: BAC  ) , and Wells Fargo (NYSE: WFC  ) all trade at a premium to tangible book value.

Weaknesses:

  • Loan loss reserves are being drawn down. If improvements in loan delinquencies continue, no problem. However, reducing loss reserves leaves less cushion to deal with the possibility of a double dip.
  • Citigroup reports it has more than $1.9 trillion in assets on its balance sheet. Improving loan quality is great, but if the economy goes back to recession or unemployment doesn't improve, no one knows whether those loans will go sour.

Opportunities:

  • Low Fed rates set up easy money by borrowing short and buying Treasuries or other secure debt.
  • A global footprint lets Citigroup go after opportunities wherever they are. Over $1 billion of Citigroup's consumer banking profit last quarter came from outside the U.S.

Threats:

  • The easy money policy at the Fed will change at some point. I don't know when, but Fed rates have only one direction to go.
  • Recently passed financial reform legislation may crimp some banking operations or impose additional costs on banks.
  • The U.S. Treasury still has a substantial ownership stake. Treasury is selling and has stated it has no intentions of directing bank policy, but situations could change. Treasury sales could put downward pressure on the share price.

Citigroup still has a lot of rebuilding work and there are potential stumbling blocks in the way, but the lights in the big Citi are starting to shine.

What parts of Citigroup's SWOT need more detail? Weigh in with a comment below.

More banking Foolishness:

Fool contributor Russ Krull owns a splinter of the Wells Fargo stagecoach, but no other stock mentioned . The Fool's disclosure policy likes thunderstorms.


Read/Post Comments (5) | Recommend This Article (22)

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  • Report this Comment On July 22, 2010, at 6:22 PM, billypae wrote:

    How are the banks supposed to make any money to get themselves out of this mess? Interest rates are too low to make Citigroup any revenue, which the government overlooks as a source of tax revenue also. The government is being its own enemy. It's like the right hand doesn't let the left hand do anything. If banks really were allowed to make more money through banking, the government would get more taxes and everyone would be happier. We need to raise interest rates instead of worry about the stock market. We need to be more proactive instead of worried and passive aggressive. In Macroeconomics, raising the interest rates alone would increase the supply side of the supply-demand curves of GDP and prices, which would amount to more jobs alone. In other words, raising interest rates would stimulate lending by banks to corporations (supply side) and thereby create jobs. Jobs would then stimulate the equilibrium point to a point along the recovery or growth curve. Jobs help pay back debt or credit cards, and banks get more revenue. We need to help the banking sector. That much is obvious.

    I wish the government would not sell itself short and low for example in Citigroup and downturn share prices by threatening to sell its shares. If the government would realize that Citigroup could return to $50 dollars a share by three years or so in a recovery to NORMAL (as it was 3-10 years ago), individual investors could again buy at the low current prices and take advantage of the huge opportunity. JP Morgan Chase, Wells Fargo, US bank, and HSBC have all made quick strides to recover back to normal stock prices, so why can't we invest heavily in Citigroup collectively WITH the government to make about 10 fold ($4.09 to 50.00 dollars per share would be a huge profit that everyone would benefit from. Wouldn't we?) If the government is tepid, consumer and business confidence is affected too. Government, can we lend more confidence to Citigroup and help invest in a sure fire winner?

  • Report this Comment On July 22, 2010, at 6:48 PM, billypae wrote:

    How are the banks supposed to make any money to get themselves out of this mess? Interest rates are too low to make Citigroup any revenue, which the government overlooks as a source of tax revenue also. The government is being its own enemy. It's like the right hand doesn't let the left hand do anything. If banks really were allowed to make more money through banking, the government would get more taxes and everyone would be happier. We need to raise interest rates instead of worry about the stock market. We need to be more proactive instead of worried and passive aggressive. In Macroeconomics, raising the interest rates alone would increase the supply side of the supply-demand curves of GDP and prices, which would amount to more jobs alone. In other words, raising interest rates would stimulate lending by banks to corporations (supply side) and thereby create jobs. Jobs would then stimulate the equilibrium point to a point along the recovery or growth curve. Jobs help pay back debt or credit cards, and banks get more revenue. We need to help the banking sector. That much is obvious.

    I wish the government would not sell itself short and low for example in Citigroup and downturn share prices by threatening to sell its shares. If the government would realize that Citigroup could return to $50 dollars a share by three years or so in a recovery to NORMAL (as it was 3-10 years ago), individual investors could again buy at the low current prices and take advantage of the huge opportunity. JP Morgan Chase, Wells Fargo, US bank, and HSBC have all made quick strides to recover back to normal stock prices, so why can't we invest heavily in Citigroup collectively WITH the government to make about 10 fold ($4.09 to 50.00 dollars per share would be a huge profit that everyone would benefit from. Wouldn't we?) If the government is tepid, consumer and business confidence is affected too. Government, can we lend more confidence to Citigroup and help invest in a sure fire winner?

  • Report this Comment On July 22, 2010, at 6:58 PM, billypae wrote:

    Please see Citigroup's 10 year chart to see normal common stock prices of $50 dollars per share.

  • Report this Comment On July 23, 2010, at 9:05 AM, rd80 wrote:

    @billypae - Thanks for the comment. The low rates are actually a positive for bank earnings. Remember, banks make money on the spread between what they borrow and what they lend. Low rates may reduce their interest revenue, but it also reduces their borrowing costs and increases loan demand. The net of those three factors nearly always translates to lower rates = higher bank earnings.

    There were a lot fewer shares of Citi when it traded at $50. I don't think it's realistic to think the share price will get back to that level without a reverse split (which doesn't really change anything) and/or many, many years of share buy backs.

  • Report this Comment On July 23, 2010, at 3:17 PM, MADACASTO wrote:

    @billypae: ENOUGH OF THE CNTRL-V ALREADY! too many words for a fundamentally silly commentary anyway - see rd80's comment above. AND PLEASE READ IT OVER AS MANY TIMES AS YOU POSTED THIS DAMM USELESS COMMENTARY, HERE AND ELSEWHERE!

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