1 Terrifying Trend at Citigroup

Citigroup has shown some signs of life, but a comparison of one critical metric against Bank of America and Wells Fargo reveals a cause for concern.

Jun 23, 2014 at 1:34PM

Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are remarkably similar in many ways, but there is one terrifying reality about the business of Citigroup that has cost investors billions.

And it could continue in coming years.


The scary reality
Although it isn't the most interesting number in the world, one of the essential things to monitor at banks is the progression of the provision for credit losses. This is an expense a bank recognizes on its income statement which estimates what a bank expects to lose from the loans it has issued. And it's subtracted straight of the possible profit a bank can earn.

Bank of America and Wells Fargo have watched their provision for credit losses plummet since the start of 2013, but the same cannot be said of Citigroup:

Source: Company Investor Relations.

The stunning reality is between Bank of America and Citigroup. Consider that in 2011 Bank of America expected to lose $1 billion more than Citigroup, but in 2013 it expected nearly $5 billion less. Said differently, there was a $6 billion swing between Bank of America and Citigroup in just two years.

And that is to say nothing of the fact that since 2011 Citigroup has expected to lose nearly twice as much as Wells Fargo, with $34.2 billion in total at Citigroup compared to $17.8 billion at Wells Fargo.

But there doesn't seem to be any end in sight.

Diving into the details
Citigroup, unlike Wells Fargo and Bank of America, has a massive presence outside of the United States. Its consumer banking business had nearly $300 billion of loans issued, and there was a nearly 50/50 split between those found in North America and those issued internationally. 

As a result, a glance into its provision for credit losses by its major geographic locations reveals a sobering reality:

Source: Company Investor Relations

While the bottom line number isn't as significant, the strong improvement from its operations in North America was partially offset by increased losses from its Latin American arm. And when you consider each regions net credit losses over its total loans through the years, the number is even more revealing:

Source: Company Investor Relations

Part of the reason for the increase in the Latin America region was that it issued more loans there. But as you can see, things are only worsening from the region that had more than $42 billion worth of loans issued by Citigroup.

The key takeaway
Undoubtedly, there is reason to be bullish on Citigroup, with the main consideration for its upside coming from a valuation perspective. Yet one of the principal concerns is its global reach, as displayed above.

Banks are cyclical businesses that do well when the broader economies in which they find themselves are doing well. And in the case of Citigroup, seemingly in order for it to be met with success, the economy of the entire planet must be thriving.

While it's possible there will be years in which that happens, one has to think -- if history has anything to tell us -- there will always be times in which one region is booming and the other is busting, which may mean Citigroup will always be caught in the middle.

These stocks beat the big banks...
Here's your chance to pocket big dividends. Over time, dividends can make you significantly richer. And guess what? The big banks are laggards when it comes to paying dividends. So instead of waiting for a cash windfall that may never come, check out these stocks that are paying big dividends to their investors RIGHT NOW. Click here for the exclusive free report.

Patrick Morris owns shares of Bank of America. 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