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Proprietary Data Insights Financial Pros’ Top Diversified Bank Searches Last Month
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Consumer Cyclical |
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Best Bank for Your Buck |
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SVB Financial seriously mismanaged its business. But don’t paint all banks with the same brush. Last month’s data from our proprietary stock-search database, Trackstar, shows financial pros still love JPMorgan (JPM). Since we covered this stock in an October issue of The Spill and haven’t changed our sentiment, we looked into the #2 listing, Citigroup (C). It’s currently one of the cheapest among its peers, trading at 0.5x book value, a key metric for bank valuations. And that’s just the start… Citigroup’s Business Let’s call a spade a spade. Citigroup got obliterated during the Great Recession and never returned to its former glory. Still, today it’s a globally diversified financial services company. Its three reporting segments include
Corporate and other make up the remainder of revenues. Citigroup has worked on exiting many of its global business units in Asia and Mexico (legacy franchises) to focus on its core competencies and reduce its international risk. Source: Citigroup Investor Relations Q4 2022 report For those worried it could turn out to be another SVB, let’s put things in perspective. Yes, the FDIC insures only 15% of Citigroup’s deposits. SVB was at 2.7%, and JPMorgan is at 32%. But almost half of SVB’s assets were in bonds maturing in five years or more. Citigroup has 6.6% of its assets in those bonds. Plus, Citigroup does a fantastic job hedging interest-rate risk. Financials Source: Stock Analysis Despite exiting several business units, C’s revenues have been steady since 2019, except for 2021. Unfortunately, higher selling, general, and administrative expenses cramped operating income. The largest contributor was net credit losses, which were up 35% quarter over quarter, driven by Retail Services. But management expects those to normalize going forward. Valuation Source: Seeking Alpha Citigroup has the lowest valuation across every metric relative to its peers, apart from price-to-cash-flow ratio, where it comes in second to JPMorgan. C’s 0.5x price-to-book ratio is especially interesting. Book value is the difference between total assets and liabilities for banks. It represents the excess value of a company. So a price-to-book ratio below 1 can signify a discount or that investors expect assets to decline relative to liabilities. Growth Source: Seeking Alpha Only TD Bank (TD) grew revenues last year. It’s also had the best growth over the last several years and looking forward. Citigroup’s negative year-over-year growth is lackluster. But we feel the company’s focus on expenses and its core business units will deliver more value than growth would currently. Profitability Source: Seeking Alpha This graphic shows why we’d like to see management focus on profitability. Citigroup’s net income margin is the second-worst among its peers. It could greatly improve, as could its returns on equity and assets.
Our Opinion 9/10 Citigroup is an excellent value. It’s focused on cutting expenses and whittling down its business to a profitable core. We see more value here than in the other banks, with better risk management. |
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