1 Graph Will Make You Rethink Bank of America Corp and Citigroup, Inc

In the last year, Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) , moved in different directions -- which could create opportunity for investors.

Strong 2013
Bank of America and Citigroup each had a strong year in 2013. Citigroup's bottom-line surged. The same is true of Bank of America, as its net income nearly tripled thanks to 2013 marking a year as it turned a corner from the woes that once characterized it.

Source: Flickr/S_E_Santana.

Different paths in 2014
Yet the same has not been true of 2014, as things have gotten much worse for Citigroup.

First, it announced it had to revise its income as a result of fraudulent activity from its operations in Mexico. Then, the bank was met with news the Federal Reserve would be denying its request to raise its dividend from $0.01 to $0.05 and buyback $6.4 billion worth of its common stock.

Meanwhile, Bank of America received word it could boost its dividend -- the same amount no less -- and make buybacks of $4 billion.  

Just this week, it was reported the FBI will begin a criminal investigation for the fraud in its Mexican unit, which is already under investigation from a civil standpoint by the Securities and Exchange Commission. While the fraud alone cost Citigroup $400 million, it's possible this could get even worse. 

The unsaid story
However, what is often unsaid about the two banks is Citigroup, even with its troubles, outpaced Bank of America across the best-known banking profitability metrics last year, as shown in the table to the right.

Source: Company investor relations.

In fact, Citigroup was able to grow its tangible book value -- one of the most essential measures of a bank's underlying value -- by 8.1% whereas Bank of America saw its rise by just 3.2%.

All of this combined has resulted in one stunning graph:


Source: Capital IQ.

As you can see, in April of last year Bank of America traded at a slight premium to Citigroup. Yet Citigroup's multiple has been essentially flat over the last year, whereas Bank of America has watched its grow by nearly 40%.

Unfairly punished
Citigroup has had a difficult few months, but on a comparable basis, a piece of Bank of America's equity is now valued 50% higher than one at Citigroup.

This isn't a knock on Bank of America (I'm a happy shareholder), but market isn't giving Citigroup enough credit. Relative value alone is not reason to make an investment, but the reality is Citigroup has continuously been valued at less than what would be remaining if it was liquidated and only its accumulated equity remained.

Despite headline noise, Citigroup's attractive valuation certainly presents a compelling reason to buy today.

Big banking's little $20.8 trillion secret
While the secret surrounding the relative valuation of Bank of America and Citigroup is now out of the bag, there's an even bigger in the banking industry that is still under wraps. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.


Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On April 04, 2014, at 9:47 AM, bsrealist wrote:

    Patrick, Patrick....Really now? Another chart? It seems that WS is running on charts and algorithms, that can be set up for ANY interpretation. Charts prove nothing! They are a mere historic tool, that does not adjust for CURRENT dynamics. If you read any prospectus, what does it say? "past performance is no guarantee of future earnings"....BUT, chartists have a chart for every breath we take. I will assume you are LONG on Citi, hence the BAC slam. Yes, its obvious.

    I will have you look at a chart, with an upside down butterfly spread, based on the Heimlich Correlation of PV and FV unbiased events. Using this graph you can use a crayon and draw in a linear Laffer analysis using the past events of Monica and Bill and a cigar. Now that makes me rethink.

  • Report this Comment On April 04, 2014, at 11:01 AM, TMFMorris wrote:

    Thanks for the comment @bsrealist

    I'm not suggesting a reason to buy Citigroup simply because of a chart, but instead the reality it is trading an attractive value from a quantitative perspective.

    This reality can be displayed in a chart, a table, or simply in words. But I chose a chart.

    "I will assume you are LONG on Citi, hence the BAC slam. Yes, its obvious."

    In investing, and in life, always be aware of the dangers of assuming.

    I state honestly "This isn't a knock on Bank of America (I'm a happy shareholder)" and the the disclosure reads plainly, "Patrick Morris owns shares of Bank of America," with no mention of Citigroup.

    I would ask that if you are going to take a negative position, that you would please do so by reading the entire article and not just the headline.

  • Report this Comment On April 04, 2014, at 2:38 PM, Gregman2 wrote:

    What this article does not touch on is the underlying quality of earnings and assets. Both B of A and Citigroup have still unwinding legacy problems (Citi due to over consolidation and acquisition; B of A through Countrywide, Mother Merrill, et al.)

  • Report this Comment On April 04, 2014, at 11:32 PM, PaulSchinider wrote:

    Citigroup Inc has failed the Federal Reserve’s Comprehensive Capital Analysis Review (CCAR). The announcement, made day before yesterday, came as a shock to both investors and Citigroup executives, and the bank’s stock has slid more than 5% since the news broke. http://goo.gl/4mtvNG

  • Report this Comment On April 06, 2014, at 1:05 AM, fingerlakes54 wrote:

    It may take another decade for retail brokerage clients to have enough faith in the big banks to seriously consider them for their portfolio. The entire financial community is under great scrutiny because of the 2008 meltdown. --You say a chance to get in early --well no thanks for me.

  • Report this Comment On April 06, 2014, at 1:51 AM, AllenElliott wrote:

    When ever they want to brake somebody or a company they start out with propaganda like this.

    Prov 11:4-6

    4 Riches profit not in the day of wrath: but righteousness delivereth from death.

    5 The righteousness of the perfect shall direct his way: but the wicked shall fall by his own wickedness.

    6 The righteousness of the upright shall deliver them: but transgressors shall be taken in their own naughtiness.

    KJV

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