2 Ways Citigroup Inc Is Outperforming Its Peers

Citigroup (NYSE: C  ) is one of the cheapest large banks in the market, trading for just 85% of its tangible book value. Despite this, the company has improved tremendously since the financial crisis, and continues to do so at an impressive pace. In fact, there are a few big ways Citigroup has outperformed its more "expensive" peers like Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) .

Its assets are worth much more than they used to be
Citigroup's tangible book value, or the value of all of its tangible assets, has grown at an impressive pace over the past few years. In the company's recent earnings report, it revealed tangible book has grown by 8% in the past year to $56.40 per share. Over the past four years, Citigroup's tangible book value has improved by nearly 50%!

In contrast, the growth in intrinsic value has slowed significantly in Citigroup's peers. JPMorgan's tangible book value improved by 6% since this time last year, and Bank of America's improved by a sluggish 3.3%. The better performance by Citigroup can be attributed to the very effective winding down of Citigroup's troubled "legacy" assets over the past several years, and implementing much more responsible lending standards than before the crisis.

C Tangible Book Value (Per Share) Chart

What this means is even if Citigroup continues to trade at a discount to its tangible book value, which I think is unlikely, we should still see the share price go up. After all, 87% of $60 is more than 87% of $50!

Fundamentals improving faster than peers
Valuation aside, one of the most compelling reasons to invest in Citigroup is how it's improving its fundamentals quicker than its big-bank peers.  According to the Basel III Tier 1 Common Ratio, which is considered to be indicative of a bank's financial strength, Citigroup is not only the most well-capitalized of the "big four" banks at a 10.6% ratio, but it has grown its capital faster than its peers:

I mentioned earlier how Citigroup grew its tangible book value at a rate of 8% last year. In contrast, its peers saw lower year-over-year improvement, with 5.5% TB growth for JPMorgan Chase and just 3.4% for Bank of America.

There are still hurdles, but these are good signs
Citigroup has definitely improved quite a bit since the crisis, but shares aren't cheap for no reason. The company has much more international exposure than peers, particularly in emerging markets, which was the main reason why Citi's capital plan was rejected by the government. There is simply no way to know the full effect of a global downturn on the bank's profits.

Additionally, while Citi Holdings (the legacy assets) has been reduced significantly, there are still about $114 billion in assets in the division, and this could be a big burden in another U.S. market crash. Citigroup's entire market cap is just over $142 billion, so if a significant percentage of the legacy assets went bad all of a sudden, it could mean a big hit to shareholders.

Having said all of this, Citigroup's incredibly cheap price makes it worth taking a chance on. If the past few years are any indication, the company will continue to aggressively reduce its exposure to bad assets and improve its capital levels. It's a matter of when, not if, the bank will be allowed to return more capital to its shareholders, and when this happens, the stock won't be on sale forever.

How will this affect Citigroup's profits?
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.

Read/Post Comments (2) | Recommend This Article (2)

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.

  • Report this Comment On May 14, 2014, at 10:12 AM, CeaRay wrote:

    I have been hearing this for many years that Citi is cheap and do you know, it is still Cheap and it may just be one of the stocks that just stays that way.

  • Report this Comment On May 16, 2014, at 8:06 PM, mikewatson021 wrote:

    Citigroup judged the stocks on the following criteria firstly on global footprint measured by revenue generated outside the home market, secondly on market capitalization of at least $3 billion and thirdly that it must be amongst the top three players by market share in their business.

Add your comment.

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: 2928522, ~/Articles/ArticleHandler.aspx, 8/31/2015 9:45:34 AM

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...

Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

Today's Market

updated Moments ago Sponsored by:
DOW 16,567.45 -75.56 -0.45%
S&P 500 1,977.72 -11.15 -0.56%
NASD 4,799.02 -29.30 -0.61%

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

8/28/2015 4:02 PM
BAC $16.36 Down -0.08 +0.00%
Bank of America CAPS Rating: ****
C $53.28 Down -0.16 +0.00%
Citigroup Inc CAPS Rating: ***
JPM $64.13 Down +0.00 +0.00%
JPMorgan Chase & C… CAPS Rating: ****