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Fundamental View
AS OF 27 Nov 2023- Citigroup is a solid global money center bank that has done a decent job cleaning up legacy issues and fortifying the risk profile in the wake of the GFC, though it still lags peers on several fronts including profitability.
- Citi has more geographic diversification than peers owing to its international presences, though the retail side is shrinking considerably as Citi exits most of Asia and Mexico, refocusing around a global wealth management/private bank strategy.
- Citi lags on the domestic deposit front, with less than half of the deposit base of money center peers and a much smaller physical footprint, though it has been focused on driving deposit flows the past couple of years.
Business Description
AS OF 27 Nov 2023- Citigroup ranks as the 3rd largest U.S. bank by total assets ($2.37 tn) at 3Q23 and 3rd largest by Total Equity ($210 bn).
- Citi is 4th in terms of U.S. deposits with approximately $757 bn as of 3Q23 across 665 branches (S&P Capital IQ). Given the significantly smaller branch footprint, Citi does not generally possess leading market shares in most states besides South Dakota (#1).
- Citi's major business lines include U.S. consumer (mortgages and credit cards) and retail banking, global consumer, global corporate & investment banking, and global payments. The company is in the process of exiting 13 international consumer markets, refocusing the non-US footprint around four regional hubs and combining wealth management and the private bank to drive synergies out of the hubs.
Risk & Catalysts
AS OF 27 Nov 2023- Citi is still lagging peers on profitability (both ROA and ROTCE); new CEO Fraser seems to have adopted the profitability gap as a key focus point as well, and we see Fraser’s strategic moves (e.g. int’l consumer exits) as aimed at capital optimization to improve ROE.
- While not as severe as a Wells-type situation, Citi’s regulatory mishaps introduces risks should the bank fail to show improvement in internal controls, or if another major risk management failure crops up. Our base case: Citi will be able to satisfy regulators and end up with improved infrastructure, though it will likely be a multi-year process with resultant upward cost pressures.
- Citi’s global footprint makes it more exposed to emerging markets and non-domestic economies, though pending exits of ‘riskier’ consumer loan books in Asia and Mexico should help the EM risk profile; Citi has also demonstrated an ability to unwind other riskier exposures (e.g. Russia).
Key Metric
AS OF 27 Nov 2023| $ mn | FY19 | FY20 | FY21 | FY22 | LTM 3Q23 |
|---|---|---|---|---|---|
| ROAE (annual) | 9.9% | 5.7% | 10.9% | 7.5% | 6.6% |
| ROAA (annual) | 0.97% | 0.48% | 0.92% | 0.61% | 0.56% |
| PPNR / Avg. Assets | 1.61% | 1.28% | 1.02% | 0.97% | 4.05% |
| Efficiency Ratio | 58% | 61% | 68% | 67% | 267% |
| Net Interest Margin (Annual) | 2.59% | 2.14% | 1.94% | 2.20% | 2.36% |
| Net charge-offs (LTM) / Loans | 1.12% | 1.08% | 0.70% | 0.55% | 0.83% |
| Common Dividend Payout | 23% | 39% | 19% | 27% | 113% |
| CET1 Ratio | 11.8% | 11.5% | 12.3% | 13.0% | 13.6% |
| Supplementary Leverage Ratio (SLR) | 6.2% | 7.0% | 5.7% | 5.8% | 6.0% |
| Liquidity Coverage Ratio (LCR) | 115% | 118% | 115% | 118% | 117% |
CreditSight View Comment
AS OF 16 Jan 2024We are comfortable with Citi and like it for the spread value over mid-A banks and compelling carry against IG corporates. We see technical support over the next 2-3 years as Citi exits int’l consumer and reduces RWAs, in turn lowering regulatory debt needs; Banamex retail is the big remaining piece, but a 2025 event at the earliest. Citi’s lagging profitability to peers is a real differentiator, but we are constructive on CEO Fraser’s overhaul and expect (and need) to see more momentum in 2024. Citi showed no ill effects from the SVB collapse, and the largely non-US commercial deposit base is inextricably tied into the bank’s broader product/service offerings with extensive and long-dated customer relationships exemplified by stable (if more costly) deposit bases and solid NIM expansion.
Recommendation Reviewed: January 16, 2024
Recommendation Changed: January 12, 2017
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