Last year was rough for banks, as they were forced to set aside billions of dollars to protect themselves against potentially devastating loan losses because of the pandemic. Thanks to swift action by the U.S. government and the Federal Reserve, however, things didn't get quite as bad as they could have.

Citigroup (C -1.19%) did itself no favors, racking up separate regulatory issues that led to a much steeper decline in its valuation. After facing its mistakes, the company shook up its management team, and the new brass has corrected course in a way that has won back some investor confidence. 

Aerial view of New York City at dawn

Image source: Getty Images

Costly missteps

Citigroup runs a giant operation. It serves retail customers through its consumer banking segment, which offers lending and deposit products, and institutional clients through its investment banking segment. The latter provides a much larger portion of the company's revenue at 63%, offering treasury and trade solutions, financial market services, and private banking.

The bank's compliance and risk-management practices caught the eye of U.S. regulators, who hit the company with a $400 million fine near the end of 2020. They cited "several long-standing deficiencies" across the entire enterprise, including the way it treated consumers in insurance matters, and the way it dealt with foreclosed homes.

Citi was also hit with a series of smaller fines, one for financial market infringements, around the same time. 

The fines were in addition to a major self-inflicted $893 million execution error the bank made when it accidentally discharged funds to a series of lenders -- one of which has refused to return them. Citi was acting as the loan agent for cosmetics giant Revlon, and was supposed to make a small $7.8 million interest payment on the company's behalf. Instead, Citi is now out of pocket for up to $504 million, which a judge has ruled is irrecoverable.

But perhaps the biggest cost of all was the lagging share price, which had it trading significantly below book value through the whole of 2020, even as its peers staged strong recoveries -- and from higher baseline valuations. The constant regulatory hits appeared to have completely shaken investor confidence. 

Amid the whirlwind, then-CEO Michael Corbat announced his retirement, and that he would be succeeded by the highly accomplished Jane Fraser. 

Forward momentum

The company announced an additional $1 billion of investment in compliance and risk management across the entire Citigroup enterprise. So far, there have been no further hiccups, and the company's stock has reclaimed an important marker: trading above its $75.50 first-quarter 2021 tangible book value. 

Citi's financial performance was mixed in the first quarter. It delivered 5% year-over-year revenue growth (and 28% sequential growth) in its institutional segment, but a 14% contraction year over year on the consumer side. The company mentioned that higher payments toward credit cards were a reason for the consumer revenue shortfall, as borrowers paid down debt and spent less money with some portions of the economy still closed.

This comes as Fraser, the new CEO, announced that Citi will withdraw consumer banking services from 13 markets in Asia and the Middle East, focusing instead on stronger-performing wealth management services. It's part of a broader refresh of the business, to focus on areas where it's performing well, and cutting areas where it is not.

Citigroup also cited persistently low interest rates, which Federal Reserve minutes revealed last week could be about to change. There is some concern among Fed members that the economy is running too hot, with inflation creeping up, and that it could be time to discuss tapering some of the ultra-loose monetary policy (like quantitative easing -- where the Fed "creates" about $120 billion per month to purchase various types of debt instruments). Robert Kaplan, the influential Dallas Federal Reserve president, went on the record last week stating that tapering should begin "sooner rather than later" -- a sentiment echoed the next day by the president of the Philadelphia Fed.

If this happens, it should send interest rates higher across the board and provide flexibility to banks like Citi to adjust their net interest margins to generate more earnings. 

Financial metrics

Citigroup generated first-quarter earnings per share of $3.62 on $19.3 billion in revenue. The company is delivering good results, but the stock has some catching up to do compared to its competitors.



Trailing-12-Month Revenue

$72.9 billion

Trailing-12-Month Earnings Per Share (EPS)


Trailing-12-Month Price-to-Earnings (P/E) Ratio


Tangible Book Value Per Share


Price to Tangible Book Value


Data source: Citigroup. All price-related data as of the morning of Wednesday, May 26.

While Citi's ratio of price to tangible book value represents progress on the last 12 months (since it languished as low as 0.6 times), it has a way to go to catch other big banks like JPMorgan Chase, which trades around 2.46 as of Wednesday morning. Bank of America, which is more consumer-focused, trades at 2 times tangible book value.

If Citi were to trade at similar ratios to its peers above, its share price could more than double. But it's imperative that the company steers clear of regulatory issues and tightens up operationally to stop preventable errors. 

The stock traded at $51 in September around when Corbat announced his retirement. Since then, it's up more than 50%, but it's worth noting the whole financial sector staged a strong rally over this period. However, Citigroup's participation signifies a vote of confidence from investors in the decision that fresh leadership was needed, and the follow-through up until now shows operations are progressing nicely.