How Profitable Is Citigroup?

My fellow Fools, operating under the assumption you can't properly evaluate a company as an investment if you don't know exactly what makes that company tick, last week we kicked off an investigation of Citigroup (NYSE: C  ) by examining how the superbank generates its revenue.

This week we're going to examine how much of that revenue makes its way to the bottom line, what eats it up along the way, how profitable Citi is relative to its peers, and how that profitability has changed over the years -- all in the pursuit of better understanding Citi as an investment.

One for you, two for me
Referencing Citi's first-quarter earnings report for 2013, we see the bank generated $20.5 billion in revenue, including CVA/DVA (for a full explanation of CVA/DVA, please see last week's article). Out of that $20.5 billion, $3.8 billion eventually reached the bottom line. So what came between Citi's $20.5 billion in revenue and $3.8 billion in profit?

In the first-quarter earnings financial supplement, we see the following expenses:

  • Provisions for credit losses and loan losses and the like: $2.5 billion.
  • Operating expenses: $12.4 billion. These include compensation and benefits, premises and equipment, advertising and marketing, etc.
  • And finally, income taxes: $1.6 billion. 

Throw in some miscellaneous expenses, and taking into account my rounding-off of the numbers along the way, and you see how Citi gets from $20.5 billion in revenue to $3.8 billion in profit. These are the kinds of expenses almost any big bank will incur in quarter to quarter operations, but some banks manage this process better than others.

The ultimate measure of efficiency
$3.8 billion in profit on $20.5 billion in revenue makes for a profit margin of 18.5%. Profit margin is a no-B.S. measure of operating efficiency, which is a direct outgrowth of management efficiency. How does Citi stack up against its peers on this all-important metric? For the same quarter:

  • JPMorgan Chase (NYSE: JPM  ) earned $6.5 billion on revenue of $25.8 billion, for a profit margin of 25.2%. 
  • Wells Fargo (NYSE: WFC  ) earned $5.2 billion on revenue of $21.3 billion, for a profit margin of 24.4%. 
  • And Bank of America (NYSE: BAC  ) earned $2.6 billion on revenue of $23.7 billion, for a profit margin of 11.0%. 

It's clear to see which banks are the leanest and meanest here: the banks that are making the most out of what they take in. At least Citi didn't come in last.

It's getting better all the time
Anyone who's followed banking for the past five years knows intuitively that all of the big banks are performing better now than they were during the financial crisis: They couldn't be performing much worse. But some banks performed significantly worse than others, like Citi.

Yet here's a quick look at how far Citi has come from a profitability perspective on a year-to-year basis since 2008:

  • In 2008, Citi reported a loss of $27.7 billion. 
  • In 2009, Citi reported a loss of $1.6 billion. 
  • In 2010, Citi reported a profit of $10.6 billion. 
  • In 2011, Citi reported a profit of $11.1 billion. 
  • In 2012, Citi reported a profit of $7.5 billion. 

Like many of its peers, Citi's financial-crisis mess was fueled by overexposure to a bursting real-estate market. But thanks to help from a little government bailout program known as TARP, a steady-if-uninspired hand at the wheel in the person of former CEO Vikram Pandit, and a return to safer lending practices, Citi has cleaned up the majority of the mess and is at the very least now solidly profitable (if trending in the wrong direction).

Now we know how Citigroup generates its revenue, how the superbank turns that revenue into profit, and how well Citi stacks up against its peers in this all-important area. Stay tuned for the next installment in this series: "What's Citigroup's Special Sauce?" In it, we'll find out what -- if anything -- Citi has going for it that makes it stand out as an investment among the Big Four banks. 

Looking for in-depth analysis on Citi?
Then look no further than our new premium report. Inside, the Motley Fool's senior banking analyst Matt Koppenheffer will give you both reasons to buy and reasons to sell Citigroup. He'll also clue you in on what areas investors need to watch going forward. And with quarterly updates included, this could quite literally be the last source of Citigroup investment research you'll ever need. For instant access to Matt's personal take on Citi, simply click here now.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2475254, ~/Articles/ArticleHandler.aspx, 9/25/2016 5:09:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
C $47.15 Up +0.04 +0.08%
Citigroup CAPS Rating: ***
BAC $15.52 Down -0.08 -0.51%
Bank of America CAPS Rating: ****
JPM $67.25 Down -0.14 -0.21%
JPMorgan Chase CAPS Rating: ****
WFC $45.74 Up +0.02 +0.04%
Wells Fargo CAPS Rating: ****