Citi Global Retail Bank Worth More Than the Whole

Agenda-Setting Financial Insight.
July 16 2012 4:29 PM

Citi Global Retail Bank Worth More Than the Whole

A credible value for Citi’s Wall Street business - at a lower rating than Goldman Sachs’ - might approach $40 billion.

Photo by ROSLAN RAHMAN/AFP/Getty Images

Citigroup investors are giving no credit to much of the bank’s business. Its global retail bank looks to be worth over $80 billion, more than the company’s entire market capitalization. Despite the publication on Monday of another set of anemic quarterly earnings, something doesn’t add up. 

The consumer business is Citi’s biggest unit by both revenue and profit. Its return on assets hit a juicy 2.2 percent for the first six months of this year. Chunky Asian and Latin American operations mean there’s growth potential. And ideas already implemented in Asia, such as having just a few mega-branches while otherwise relying on smart ATMs, could bear fruit in other markets. 

Assume the global retail bank’s 2012 earnings come in at double the showing in the first half and apply a conservative 10 times multiple and the division is worth $83 billion, against Citi’s current market value of $79 billion. 

Citi’s other businesses include investment banking and the solid transaction services division, which provides companies with cash management, trade-related and other services and claims 96 percent of Fortune 500 companies as customers. 

Putting the latter on the same 12 times 2012 expected earnings as State Street, a peer in some respects, values it at $44 billion. That’s enough to offset the $40 billion drag on valuation that can reasonably be ascribed to Citi Holdings, the vehicle for the bank’s remaining unwanted dross, which is on track to lose $4 billion this year. 

By that math the investment bank is worth about minus $8 billion. Some wariness is called for with trading and issuance volumes low, new rules yet to be written and the legal fallout from mortgages and the Libor mess still unclear. But attributing a negative value to a unit that has managed a 28 percent pre-tax margin so far this year is unduly harsh. 

A credible value for Citi’s Wall Street business - at a lower rating than Goldman Sachs’ - might approach $40 billion. But to get there would require a 60 percent leap in the bank’s stock price. The math might just support such a surge, and Citi would still trade well below its book value. But given the state of banking at large, few investors are going to bet on it happening any time soon.

Read more at Reuters Breakingviews.

Antony Currie has more than a decade of experience as a financial journalist, having worked with Euromoney since 1996, most recently as a US editor. He has worked on assignments in the major financial centres of Europe and the US and written stories on capital markets, global economies and the investment banking industry.



Crying Rape

False rape accusations exist, and they are a serious problem.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

No, New York Times, Shonda Rhimes Is Not an “Angry Black Woman” 

Brow Beat
Sept. 19 2014 1:39 PM Shonda Rhimes Is Not an “Angry Black Woman,” New York Times. Neither Are Her Characters.

The Music Industry Is Ignoring Some of the Best Black Women Singing R&B

How Will You Carry Around Your Huge New iPhone? Apple Pants!

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.


The Other Huxtable Effect

Thirty years ago, The Cosby Show gave us one of TV’s great feminists.

Lifetime Didn’t Find the Steubenville Rape Case Dramatic Enough. So They Added a Little Self-Immolation.

Why Men Can Never Remember Anything

The XX Factor
Sept. 19 2014 1:11 PM Why Men Can Never Remember Anything
  News & Politics
Sept. 19 2014 5:19 PM Washington’s Acting Roles
Sept. 19 2014 3:24 PM Why Innovators Hate MBAs
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
Future Tense
Sept. 19 2014 5:03 PM White House Chief Information Officer Will Run U.S. Ebola Response
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.