Citigroup Inc. Earnings: Will the Bank Reassure Scared Investors?

The Federal Reserve's rejection of Citigroup's capital plan has shareholders nervous. Should they be?

Apr 12, 2014 at 1:00PM

Citigroup (NYSE:C) will release its quarterly report on Monday, and investors have been increasingly worried about the bank's prospects. Even as Wells Fargo (NYSE:WFC) reported solid results Friday morning, Citigroup has faced more extensive regulatory challenges, as well as difficulty in keeping its operational performance as high as it had hoped. As a result, shareholders wonder whether Citigroup will be able to keep up with Bank of America (NYSE:BAC), Wells Fargo, and other banking peers, especially given that Citigroup's share-price performance hasn't matched up well against its rivals so far in 2014.

Citigroup has posted an impressive recovery since its lows during the financial crisis, making considerable headway in shoring up its capital position and providing good gains for its stock for those shareholders who had the courage to hang on to their shares or add to positions after the 2009 bottom. But Citigroup has had to deal with challenges from including settlement liability to toxic assets, regulatory setbacks, and threats to its future growth. Let's take an early look at what's been happening with Citigroup over the past quarter and what we're likely to see in its report.

Citi

Stats on Citigroup

Analyst EPS Estimate

$1.14

Change From Year-Ago EPS

(7.3%)

Revenue Estimate

$19.37 billion

Change From Year-Ago Revenue

(5.5%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

What will happen to Citigroup earnings Monday?
Analysts have cut their views on Citigroup earnings substantially over the past several months, reducing their first-quarter estimates by about 20% and knocking more than 10% from their full-year 2014 projections. The stock has also struggled, losing about 15% since early January.

Citigroup's fourth-quarter results didn't start things off on the right foot for the bank, as even solid growth wasn't enough to impress shareholders. Revenue fell almost 3%, and even though Citigroup's adjusted net income rose 15%, it saw substantially lower volumes of mortgage refinancing, which helped to hold back its consumer banking segment. Lower mortgage volumes have been a problem throughout the industry, but more broadly, consumer banking at Wells Fargo and Bank of America has held up much better than at Citigroup. Yet despite failing to make shareholders happy, Citigroup CEO Michael Corbat said the bank's long-term turnaround is still intact and on course for success.

More recently, though, Citigroup's problems seem to have compounded. Last month, the Federal Reserve singled out Citigroup among the nation's largest banks in denying its proposed capital plan. Citigroup had wanted to quintuple its quarterly dividend to $0.05 per share and initiate a stock buyback of $6.4 billion, but the Fed characterized Citigroup's revenue-loss projections under high-stress scenarios as deficient. Then, just earlier this week, reports surfaced that Citigroup could miss its profit expectations for the first quarter, as returns on tangible common equity might fall below its own projections.

Operationally, Citigroup will also have some new challenges to face in the future. The bank has about $19 billion in home equity lines of credit from the housing-bubble era that will reach the end of their draw period and start requiring principal and interest payments. If borrowers are not able to repay, it could lead to a replay of the delinquencies we saw during the run-up to the financial crisis. With resets scheduled to soar in 2015 and 2016, Citigroup needs to anticipate any potential problems from these troubling loans.

The big question Citigroup has to answer is whether its long-range plans will succeed in getting the bank back to basics. As new regulatory requirements like higher capital minimums take effect, Citigroup has to take advantage of its attractive net interest margin and efficiency ratio to boost its internal returns and get more income to fall to the bottom line. In particular, with valuable deferred tax assets relying on Citigroup continuing to increase its pre-tax income, Citigroup has to make sure it makes the most of its opportunity.

In the Citigroup earnings report, watch to see how the bank's results compare to those of Wells Fargo. Even if Citigroup's can't match its rivals entirely, it's important for the bank to show investors its path toward a brighter future.

Big banking's little $20.8 trillion secret
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. 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.

Click here to add Citigroup to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Dan Caplinger owns warrants on Bank of America and Wells Fargo. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers