Why Citi Is Having a Better Week Than Expected

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At the opening bell, Citigroup (NYSE: C  ) was down 2.26% for the week, riding the general wave of market pessimism and some unwelcome news from the Friday previous. But two and a half hours into trading today, shares are down a mere 0.58% for the week, buoyed by welcome jobs news from the federal government that has sparked a powerful market rally.

This just in
The Labor Department reported this morning that the U.S. economy added 175,000 jobs in May, beating economists' expectations. The overall rate of unemployment actually rose from 7.5% to 7.6%, but this is because of more people returning to the workforce. This is very welcome news indeed.

The unwelcome news is word that Citi is finding itself back in court, refighting a case it thought it won several years ago, one that could put it on the hook for $8.3 billion. The case involved Citi's facilitation of the sale of EMI to British private equity firm Terra Firma. Terra Firma claims Citi lied about a competitive bid, which led to a gross overpayment by Terra Firma for the recording and music-publishing giant.

Then on Monday, American Banker broke the news that Citi had settled a suit with institutional investors over losses incurred during the housing boom relating to share purchases.

Foolish bottom line
If the Terra Firma case goes against Citigroup, and Citi finds itself on the hook for the entire $8.3 billion, the superbank won't be made insolvent. But $8.3 billion is a lot of money, even for Citi. Unfortunately, there's nothing much to do but wait until the outcome is decided. This could cause market unease, which could affect the performance of the stock.

As for the American Banker story, no payout amounts were disclosed. Will it be $1 million or $1 billion? Investors don't know right now. This could also cause market unease and affect the performance of the stock.

But for today at least, the Labor Department's good economic news seems to be overcoming any investor unease over Citi's legal woes. All of the Big Four banks are solidly up right now (though less so for Bank of America (NYSE: BAC  ) , as it's in a legal fight far worse than Citi's at the moment). And all three market indices are solidly up, too.

Strangely enough, good economic news like this can also spark market unease. Federal Reserve Chairman Ben Bernanke has made no secret that he plans to begin reducing the central bank's $85 billion in monthly bond purchases as the economy improves. It's widely believed these bond purchases are behind the country's nascent economic recovery.

As such, when good economic news breaks, markets have been known to go down, and not up. It's this sort of almost random behavior that prompts us here at The Motley Fool to tell investors to take a long-term view of investing. Tune out market noise and tune into the fundamentals of the companies you're invested in. And leave the daily stock-price checks to the day traders: Your portfolio will thank you, even if your broker won't. 

Looking for in-depth analysis on Citi?
Then look no further than our new premium report. Inside, Motley Fool senior banking analyst Matt Koppenheffer cracks the superbank's code: revealing how it makes money, how profitable it is, and what areas investors need to watch going forward. He'll also give you three reasons to buy and three reasons to sell. And with quarterly updates included, this premium report could quite literally be the last source of investment research you'll ever need on Citigroup. For immediate access, simply click here now.

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Related Tickers

9/26/2016 4:00 PM
C $45.89 Down -1.26 -2.67%
Citigroup CAPS Rating: ***
BAC $15.09 Down -0.43 -2.77%
Bank of America CAPS Rating: ****