Citigroup, Inc. Earnings: Can the Bank Stop Its Tailspin?

On Monday, Citigroup (NYSE: C  ) will release its quarterly report, and investors have a lot of uncertainty about the bank's ability to keep growing in light of recent setbacks. With even the arguably healthier Wells Fargo (NYSE: WFC  ) having seen revenue drop due to lower total loan volume, Citigroup faces an uphill battle to buck the trend and find ways to boost its business even as competitive pressures from Bank of America (NYSE: BAC  ) and other big-bank rivals fight hard to win market share in the industry.

Many investors put Citigroup in the same category as Wells Fargo, Bank of America, and other big U.S. banks, given its stature in the U.S. deposit market. Yet Citigroup has unique qualities, one of the most important of which is its commitment to its global scope. As a result, Citigroup has opportunities in overseas markets that its U.S. rivals choose not to pursue, but it also carries additional risks that its peers avoid. Is global domination the key to Citigroup's 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.

Stats on Citigroup

Analyst EPS Estimate

$1.06

Change From Year-Ago EPS

(21%)

Revenue Estimate

$18.91 billion

Change From Year-Ago Revenue

(7.7%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

When will Citigroup earnings start to grow again?
In recent months, investors have gotten much more pessimistic in their views on Citigroup earnings, cutting second-quarter estimates by $0.16 per share and reining in full-year 2014 and 2015 projections by 3% to 4%. The stock has gone nowhere, climbing less than 1% since early April.

Citigroup's first-quarter earnings report gave shareholders some welcome good news, especially given that the Federal Reserve had just rejected Citigroup's proposal to raise its dividend and start returning more capital to shareholders. Adjusted net income rose from year-ago levels, and the bank continued to wind down its holdings of bad assets under its Citi Holdings unit, working to rid itself of the lingering impact of the financial crisis. Yet like Wells Fargo and Bank of America, Citigroup struggled from poor results in its mortgage-lending division, and Citi also had to deal with reduced revenue from its trading unit due to the unpredictable interest rate environment.

Yet Citigroup still has a long way to go to catch up to its peers in many ways. For instance, from 2011 to 2013, Bank of America and Wells Fargo reduced their provisions for loan losses by more than 70%, but Citigroup's credit-quality improvement has been a lot slower, with provisions declining by less than a third over the same time period. Much of the trouble is coming from Citigroup's foreign exposure, with Latin American consumer credit loss provisions actually having jumped by almost a third during the past few years. Similarly, overseas risks for Citigroup have ballooned in other areas, with a downward revision earlier this year resulting from client fraud in its Mexican lending operations and with concerns that similar problems involving collateral fraud might have occurred in China recently.

Litigation risk has also continued to plague Citigroup. Just earlier this week, reports suggested that Citigroup could pay as much as $7 billion to settle allegations that it engaged in abusive behavior in nits mortgage-lending practices prior to the financial crisis. Citigroup isn't the only bank that's been on the hook for similar liability, with Bank of America facing similar charges and some other banks already having settled mortgage-abuse allegations. Nevertheless, a settlement of that magnitude would represent several months' worth of net income and remind investors that one-time charges for past behavior might not be over and done with just yet.

Still, the big question for Citigroup investors is whether the stock already reflects these challenges. Citigroup at an even bigger discount to book value than Bank of America, and its valuation is a lot more attractive than Wells Fargo.

In the Citigroup earnings report, watch to see how the company's numbers compare with Wells Fargo's release on Friday. If it can keep its loan losses moving downward and stabilize its poorer-performing business units, then Citigroup could give investors a nice surprise on Monday.

Citigroup + Apple? This device makes it possible.
Apple recently recruited a secret-development Dream Team to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out... and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, AND the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

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


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

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: 3025936, ~/Articles/ArticleHandler.aspx, 9/23/2014 4:42:59 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...


Advertisement