Why Citigroup Is Surging Today

Citigroup (NYSE: C  ) is on another run this morning as more positive legal news gives investors another sense of relief. In the wake of the financial crisis, Citi and other banks have been struggling to shed their legacy issues, many of which have turned into legal battles. With Citi taking one step further away from the crisis, investors are rewarding it this morning with a 1.28% gain as of 10:30 a.m. EDT.

Legal recap
Just two days ago, investors got the news that Citi had settled its case with the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae, over allegations that the bank mislead the two GSEs into buying $3.5 billion in mortgage-backed securities. Though the terms of the settlement have not been disclosed, investors took this as a positive move for the bank, lifting its stock 2.35%.

Another one bites the dust
This morning, news of another settlement is hitting the market, with enough force to send the bank higher still. Citi has reached yet another settlement over mortgage-backed securities with Allstate (NYSE: ALL  ) . This is settlement follows the newer trend of banks settling with insurers over MBSes. Allstate also filed a similar suit against Bank of America (NYSE: BAC  ) , which recently settled a contentious legal battle with insurer MBIA (NYSE: MBI  ) . The Allstate-B of A suit is still unresolved, though the bank unsuccessfully tried to have the entire suit dismissed back in March.

The Allstate suit, which was considerably smaller than the FHFA suit, with only $200 million of MBSs in question, will leave a smaller dent in Citigroup, but investors still have no details on the terms of either settlement. Yet the prospect of clearing off the bank's legal docket seems to be the most important detail to investors so far, leaving worries about payouts until a later date.

Looking ahead
Citi's recent clearing of some of its legal issues is certainly a relief for investors, as uncertainty surrounding court battles can weigh heavily on banks. But this mornings bump from one case points out the come-and-go nature of any stock's daily moves. As noted above, no details of either the FHFA or Allstate settlement have been released yet, and if investors find the terms unfavorable, the gains made today and earlier in the week could be quickly reversed. As a long-term investor, you should understand the importance of these settlements, but don't let the quick, exciting climbs get to you. Understanding that the legal matters don't effect the fundamentals of Citigroup's operations will keep you level-headed though the ups and (eventual) downs.

Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and CEO Michael Corbat still needs to prove himself. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot in your portfolio, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.


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