C Citigroup
At 1.15x book, the market doubts Citi's fix; an 11.5% ROE supports modest upside.
The story
Citi is a global money-center bank with a franchise in treasury and trade services, cross-border payments and markets. It is well into a multi-year simplification: exiting international consumer, cutting layers of management and fixing its regulatory issues. Trailing ROE is 9.3% (17.84B on 192.24B of book equity) while revenue grew to 91.19B, which suggests operating leverage is starting to show. Capital is solid and buybacks are ongoing, but the credit cycle is in its later stages and the consent orders are still in place, so the cost of equity is high for a bank.
I am keeping all prior drivers because nothing material has changed. The 11.5% normalized ROE assumes cost cuts and higher fee revenue close most of the gap to the 10-11% RoTCE target, with a haircut for tangible-versus-total book and a normal credit-loss year. The implied cost of equity is about 10.1% (5.16% plus 1.1 x 4.5%), so ROE sits only slightly above it and the stock deserves roughly 1.2-1.3x book. Book growth stays low because buybacks absorb most retained earnings.
Value drivers
| Return on equity (normalized) | 11.5% |
| Book-value growth (Y1) | 3.5% |
| Terminal book growth | 4.0% |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of equity | 10.1% |
Valuation bridge
| PV of excess returns | 18.73B |
| PV of terminal excess | 24.08B |
| Equity value | 230.35B |
| ÷ shares → per share | $137.32 |
News
neutral -0.10 · 8 articles
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- Citi doubles down on Micron stock ahead of earnings
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- Can Private Credit Unlock More Growth for JPMorgan's Card Business?
- Citi Is Rolling Out Higher Rates in New Push for Clients’ Assets
- Is Citigroup (C) Stock Still Trading At A Discount?
- Citi Resets Micron Target After Surprise
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 192.24B | 11.5% | 2.67B | 2.42B |
| 2 | 198.97B | 11.5% | 2.76B | 2.28B |
| 3 | 206.04B | 11.5% | 2.86B | 2.14B |
| 4 | 213.48B | 11.5% | 2.96B | 2.02B |
| 5 | 221.31B | 11.5% | 3.07B | 1.90B |
| 6 | 229.55B | 11.5% | 3.19B | 1.79B |
| 7 | 238.22B | 11.5% | 3.31B | 1.68B |
| 8 | 247.35B | 11.5% | 3.43B | 1.59B |
| 9 | 256.97B | 11.5% | 3.57B | 1.50B |
| 10 | 267.11B | 11.5% | 3.71B | 1.41B |
Key risks
- Transformation delays, or regulators escalating the consent orders, keeping expenses high and ROE stuck near 9%
- Credit normalization in US cards (Branded and Retail Services) as unemployment rises
- Emerging-market, geopolitical or markets-trading shocks hitting the international franchise
Catalysts
- Lifting of the consent orders, followed by larger capital returns
- Evidence of sustained positive operating leverage and delivery on the 10-11% RoTCE target