Why Bad News Can't Stop Citi Investors Today

After beating out Friday's market correction, two and half hours into trading today, Citigroup (NYSE: C  ) stock continues its strong performance: up a big 2.2%, despite breaking news it owes Fannie Mae almost $1 billion over bad mortgages it sold the government-run housing giant.

We've got it covered
Financial Times is reporting that Citi will pay Fannie $968 million for "breaches of representations and warranties on 3.7 million residential first mortgage loans sold to Fannie Mae that were originated between 2000 and 2012." Citi said the payout will be covered by the bank's mortgage-repurchase reserves.

"This agreement resolves substantially all potential future repurchase claims from them for loan originations from 2000 to 2012." So said CitiMortgage CEO Jane Fraser, in the same statement announcing the settlement. 

Foolish bottom line
Investors seem to not just be shrugging off this news today, but charged up by it, if the stock's performance relative to its peers' is any indication.

JPMorgan Chase (NYSE: JPM  ) is up only 1.2% today. Up by 1.9%, Bank of America (NYSE: BAC  ) stock is doing somewhat better. Even the mighty Wells Fargo (NYSE: WFC  ) finds itself humbly lining up behind Citi, with its stock up by only 1.5%.

It's possible that Citi investors are seeing this as yet another step toward full atonement for financial sins of the past, and another indicator that the bank is moving farther along the path to complete redemption. Once you get past the $1 billion sticker shock, you realize this payout is potentially a bargain. Consider that B of A settled with Fannie Mae this past January for more than $10 billion for the same kinds of issues, and $968 million doesn't seem so bad.

Perhaps this, taken with the general upward market trend we saw beginning last week, adds up to Citi's big performance today. A few notes of caution, though. First, this payout doesn't cover any similar liability potentially looming with Freddie Mac, the other government-run housing giant. Second, there's still just a lot of volatility in the market right now. Investors are still very uneasy over the future of quantitative easing. And a possible credit crunch in China is also leaving investors feeling fragile.

It's also no doubt reassuring that this payout is covered by reserves. Citi is having a good day today, so perhaps the best advice is to take the money and run. Better yet, take a long-term view of investing by tuning out this market noise and tuning into the fundamentals of the companies you're invested in. Your portfolio will thank you, even if your broker won't.

Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


Read/Post Comments (0) | Recommend This Article (4)

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.

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: 2518808, ~/Articles/ArticleHandler.aspx, 9/1/2014 10:06:02 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 3 days ago Sponsored by:
DOW 17,098.45 18.88 0.11%
S&P 500 2,003.37 6.63 0.33%
NASD 4,580.27 0.00 0.00%

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

8/29/2014 4:00 PM
C $51.65 Up +0.26 +0.51%
Citigroup Inc CAPS Rating: ***
BAC $16.09 Up +0.08 +0.50%
Bank of America CAPS Rating: ***
JPM $59.45 Up +0.29 +0.49%
JPMorgan Chase & C… CAPS Rating: ****
WFC $51.44 Up +0.29 +0.57%
Wells Fargo CAPS Rating: ****

Advertisement