C - Citigroup stock price: Citi turnaround strategy faces headwinds

2023-11-27 06:39:51 ET

Citigroup (NYSE: C) stock price is doing modestly well this year as investors cheer Jane Fraser’s turnaround strategy. The shares have risen by about 2.65% this year, outperforming other Wall Street companies like Morgan Stanley, Goldman Sachs, and Bank of America.

Jane Fraser has a tough job ahead

Citigroup is the 18th bank in the world by market cap and the eighth one in the US. It has been a troubled financial conglomerate that constantly trades below book value. Also, the company has severely underperformed its key competitors in the past decade.

Citigroup has gone through several challenges over the years. For example, in 2022, the company was saved by the federal appeals court in an epic blunder in which the company accidentally sent more than $900 million to Revlon’s creditors.

Citigroup also lost money after an error in London led to a European stock market flash crash. The split-second mistake wiped out over $256 billion in value and cost the company millions of pounds.

Citigroup has also been forced to pay billions in fine in the United States. In 2020, the company paid $400 million to settle long-standing risk management issues.

All these factors, coupled with the company’s complex business operations have made it a toxic bank to invest in over the years. For a long time, the company has had operations around the world and in various sectors.

Its main operating segments were Institutional Clients Group, Personal Banking and Wealth Management, and Legacy Franchises. Beneath these, Citigroup offers a variety of services like treasury and trade solutions, equity and fixed-income markets, and investment banking.

Now, Jane Fraser, the bank’s CEO is in a battle to simplify its operations by merging divisions and exiting key markets in Asia, Europe, and the Middle East. It has also closed branches and is working to lay off staff. Last week, it terminated 300 senior managers and more job cuts are coming.

Citi vs JPM vs Goldman Sachs vs Bank of America stocks

Is CITI a good stock to buy?

Fraseer’s strategy is simple. She wants to create synergies across its business segments, simplify its operations, and boost its culture. Her hope is that these actions will lead to more cost cuts, revenue growth, and a higher stock price. She expects that the company can achieve revenue growth of between 4% and 5%.

Citigroup has historically traded at lower multiples than other American banks. A look at its price-to-book shows that it stands at 0.46. JPMorgan, Morgan Stanley, and PNC Financial have a PB multiple above 1. Its valuation metrics like forward PE of 7.40 are also lower than all big American banks.

Therefore, I believe that Citigroup’s turnaround strategy is long overdue. However, I also suspect that it will take long to complete because of how big and complex Citi is.

For one, even with the new cuts, Citi will still have over 240k workers and a presence in many countries. In the recent earnings call, Mike Mayo argued that Citi will have a challenge hitting its target. He said:

“I have not spoken to one investor who thinks you’re going to get those targets and maybe you would want to revise those lower in some way or maybe to be determined? Or what’s your degree of conviction of getting to those targets or at least getting above your cost of capital?”

Therefore, in this case, while this is not an investment recommendation, I would suggest staying in the sidelines for now as you wait for the fourth-quarter results in January.

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