I was late to the game on Citigroup (NYSE:C).
For a good while there, the outlook for the banking giant was bleak. Worse, there didn't seem to be a cogent, focused direction that the bank was working toward in the wake of the financial meltdown. If that did exist, it was something along the lines of, "We'd like to be less terrible in the future."
Enter Michael Corbat.
In October of 2012, Vikram Pandit stepped down as CEO of Citigroup, and Corbat took his place. The transition took the reigns of the bank out of the hands of a hedge-fund manager and put them squarely in the hands of a... banker. Imagine that.
Though a year is hardly enough time to overhaul a bank the size of Citigroup, Corbat has done an extremely good job laying out his direction and strategy. Under Corbat, the bank has continued to wind down the bad-asset repository Citi Holdings -- which Corbat ran prior to taking over as CEO -- and rationalizing its presence around the world. The actions are intended to focus the bank and turn it into the premier cross-border, global bank.
And while I'm singing Corbat's praises, here, it'd be a mistake to ignore the more behind-the-scenes impact of Citigroup Chairman Michael O'Neill. Another career banker, O'Neill led Bank of Hawaii (NYSE:BOH) through a comeback in the early 2000s -- a comeback that more than doubled both return on assets and return on equity.
Combine the strong new leadership in place with Citigroup's established presence around the world, and its stock's paltry price-to-tangible book value multiple of 0.96, and I think we've got the makings of a winning investment.
I will be opening a new position in Citigroup stock in my real-money portfolio.
A Dimon in the rough
I already own both JPMorgan Chase (NYSE:JPM) and AIG (NYSE:AIG) in my real-money portfolio. JPMorgan -- which I purchased in August -- has been the top performer in my portfolio, while AIG -- a more recent purchase -- has been the laggard so far.
It may seem strange that JPMorgan's stock has done as well as it has lately given the well-publicized $13 billion settlement it agreed to recently. But the market's reaction highlights exactly what I assumed when I originally purchased JPMorgan for this portfolio: that the overhang from a big settlement was obscuring the bank's solid core business. With the settlement in the books, the legal quagmire isn't completely over for JPMorgan, but investors are feeling much more comfortable about thinking more about business fundamentals and less on legal liability.
Buying more JPMorgan stock today, after the settlement, is a more expensive proposition, but I'm adding to my position because I still see a strong core business, and I can take one big -- albeit pricey -- unknown out of the picture.
A bumpy road for AIG
The road for AIG out of the financial crisis has likewise been a bumpy one, but for different reasons. While JPMorgan's recently headline-grabbing settlement took (part of) a concerning unknown off the table, AIG's third-quarter earnings report brought a new concern to the fore.
AIG CEO Bob Benmosche had set goals for AIG that he hoped the company would achieve by year-end 2015. These goals included a return on equity and profit-growth targets. But during his third-quarter comments, Benmosche said he'd reduce the updates he'll be giving around these goals.
Benmosche's reasoning for the change was that he never viewed the goals as specific, "hit by this date" targets, and the closer we get to 2015, the more he'd view updates on the goals as specific guidance. The interpretation by the investment community was pretty obviously along the lines of: "Uh, oh, AIG isn't going to hit those goals."
If AIG were assured to hit those targets, I have little doubt Benmosche would revel in continuing to update on them. At the same time, whether AIG hits a 10% ROE by 2015 or is at 9.8% in the first quarter of 2016, we're talking about the same thing -- a continued improvement in AIG's core businesses leading to improving financial outcomes.
AIG's stock is down roughly 4% since announcing earnings, and it's fetching a price-to-tangible book value multiple of 0.74. I'm happily building onto my position in this strong global insurer.