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8/12/2019 c_f13
1/20Important disclosures appear on the last page of this report.
The Henry Fund Henry B. Tippie School of ManagementAasim Shaik [ [email protected]]
CITIGROUP (C) November 18, 2013 Financial Banks Stock Rating BUY
Investment Thesis Target Price $57-60
BACKGROUND
Citigroup is one of the leading global banks that has successfullyestablished its presence in emerging markets; 42% revenue comesfrom North America (NA), 21% Asia, 21% Latin America, 16% EMEA.
THESIS - Attractive valuation at current price ($50) Trading at discount to
book ($63), forward earnings ($62) and sum-of-parts at $56-65.- Relatively new management team, but they have shown significant
progress in terms of capital returns and reducing risk of its runoffbusiness. Mr.Corbat obtained Feds approval for $1.2 bn buyback.
DRIVERS - Market has not given enough credit for its success in emerging
markets. Slowing emerging markets growth is a concern for short-term, but over the long-term the growth potential continues toexist for its credit card and investment banking business.
- Well capitalized bank despite uncertain Basel III regulations goodcapital and leverage ratios.
- About $40 bn in equity capital is set aside to support DTAs. Half ofDTAs expire in next 10 years . Mgmt. eager to realize them andhence, some of the equity capital could be freed up for shareholderreturns.
RISKS
- Volatile lawsuit expenses. Mgmt. clearly indicated that they mightexceed reserves set aside for lawsuits.
- Investor sentiment has been negative towards this stock.- Prolonged slowdown in emerging markets
Henry Fund DCF $57.15EP Model $57.15Relative Valuation $68.43Sum-of-parts Valuation $56-65Price Data Current Price $50.0052wk Range $34 54Consensus 1yr Target $58.84Key Statistics Market Cap (B) 154.05Shares Outstanding (B) 3.03Institutional Ownership 68.60%
Three Year Adj. Beta 1.60Dividend Yield 0.10%Est. 5yr Growth 19.27%Price/Earnings (FY1) 10.72Price/Earnings (FY2) 9.30Price/Book (MRQ) 0.79Price/Tang. Book (MRQ) 0.93Profitability (MRQ)NIM 2.92%ROA 0.71%ROE 6.57%
Earnings EstimatesYear 2012 2013E 2014E 2015E 2016E 2017EEPS $02.51 -$04.54 $05.03 $05.75 $06.74 $06.77
12 Month Performance Recent Developments
1. 07/13: Q213 Earnings: Beat EPS estimate by5.4%, Revenue estimate by 3.5%2. 04/13: $1.2B stock repurchase program isapproved.3. 04/13: Q113 Earnings: Beat EPS estimate by10.2%, Revenue estimate by 1.5%4. 01/13: Corbat announces new managementteam5. 08/12:Vikram Pandit steps down as CEO,board elects Michael Corbat
10.7
0.8
6.5
8.9
1.4
8.7
11.6
1.5
9.4
0
5
10
15
P/E P/B ROE
C Industry Sector
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
A M J J A S O N D J F M A M J J
C S&P 500
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EXECUTIVE SUMMARY
We are initiating a BUY recommendation on Citigroup (C).Our valuation suggests a target price of $57-60, a 20%upside to current price. Attractive valuation is a key partof our thesis. It is trading at current price $50 hugediscount to book ($63), forward earnings ($62), DCF ($57)and sum-of-parts at ($56-65). We think that the currentforward earnings multiple of 10.3x is sustainable becauseCiti has shown signs of progress under new management.Last 5 yr. avg. ROE is at 3.9% (excluding 2008 dip), whilein last 3 quarters the ROE is at a healthy 8.3%, almost inline with JPM. Management has talked about reachingtargeted ROE of 10%. Applying 11x multiple to 2014expected EPS, target price comes to about $62. We haveevaluated individual pieces of business separately bycomparing to their competitors and came up with a pricein the range of $56-65. Financial sector has recoveredsignificantly from the 2008 crisis and strong capitalrequirements have somewhat reduced the risk in thesebig banks. Most of the banks in its peer group (JPM, WFC,BAC) trade at higher multiples and we do not see areason why Citi should be left behind.
Citi is one of the few banks that has been able toestablish a strong brand in emerging markets. Market hasgiven less credit for its tremendous success in India,China, Mexico and other parts of Latin America. But,recent slowdown in China, Korea and currencyfluctuations in Argentina have resulted in few losses. Citiissued a weaker international outlook in near term.However, we think that over the longer term - a span of 3to 5 years - Citi will benefit from its investments in citieswhere growth potential is huge. It continues torestructure its foreign branches by focusing only onprofitable divisions. Recent shutdown of branches inPakistan, Paraguay, Uruguay, Romania, and Turkey isexpected to result in $1.1 billion cost savings a year.
COMPANY DESCRIPTION
Citigroup is one of the leading global banks that hassuccessfully established its presence in emergingmarkets; 42% revenue comes from North America (NA),21% Asia, 21% Latin America, 16% EMEA. It operatesunder 2 segments Citicorp and Citi Holdings.
Citi Holdings is a runoff block that Mr.Vikram Pandit, ex-CEO of Citigroup, had set up to put unprofitablebusinesses, troubled loans and securities. In 2009, thisblock had about $617 billion in assets; currently, thisblock has about $131 billion in assets. Since these assetswere producing interest income, Citi couldnt wind the m
down soon. Last year, Citi suffered a loss of $4.7B aftersale of 35% stake in Smith Barney, wealth managementfirm included in runoff, to Morgan Stanley. Out of $131billion assets, almost $80 billion are related to legacy badmortgage loans. Losses from Holdings have consistentlyincreased and dragged overall earnings down.Management has often talked about reducing size of thisblock as soon as they can in an economically rationalway. It has adopted strategy of selling bad mortgageloans in smaller chunks.
Refer to Appendix - 1
Citicorp mainly operates under:
Global Consumer Banking - 57% of total Citicorprevenues
o More than half of revenue comes from NorthAmerica region more profitable than others;since 2010, revenues and profits haveconsistently increased.
o
Almost 55% of revenues come from Credit cards,while rest comes from Retail banking. In last 3years, revenue from cards has reduced, whileretail banking business has shown faster growth.
Securities and banking 28% of total Citicorprevenues
o Primarily includes investment banking, fixedincome, debt & equity markets
o Because of slow growth in domestic M&Aactivities, revenues from North America have
fallen in the last few years. But, Latin Americahas generated higher revenues and profits. In2012, Citi was involved in the Petrobras $7billion multi-tranche bond offering - the largest-ever emerging market corporate bond offeringin international market.
Transaction Services 15% of total Citicorprevenues
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o Through this division, Citi provides cashmanagement, trade, securities and fund servicesto multinational corporations, financialinstitutions and other public sectororganizations globally.
o EMEA and Asia account for almost 65% of
revenues from this division and revenue andprofit growth from this region has consistentlyincreased.
Corporate/Other
o Day-to-day operations and other debt relatedtransactions.
CAPITAL AND LIQUIDITYFrom Appendix-2, we can see that Tier 1 Common and
Capital ratios (based on Basel I) have exceeded wellcapitalized level. The firm also increased its estimatedTier 1 Common ratio (based on Basel III) to 10%,positioning it to be one of the strongest banks toovercome Basel III regulatory environment. The Basel IIIcommon ratios for other banks are BAC 9.4%, JPM 8.86%,WFC 8.39%, USB 8.22%. (As of Q1 2013).
Recently, Fed Reserve Board (FRB) proposed to increaseSupplemental leverage ratio requirement for biggerbanks t o 6%. As of Q2 2013, Citigroups ratio is 4.9%. Thisproposal, if adopted, would take into effect from 2018.So, this could be one of the potential risks as Citi mightneed to add excess capital to meet proposedrequirements. But, other banks too will face similar risks BACs leverage ratio was at 5%, JPM at 4.7%.
The structural liquidity ratio of Citi is at a healthy 73%.(Structural liquidity ratio measures whether assets are
sufficiently supported by long dated liabilities) .
Under amended guidelines for Basel III, Liquiditycoverage ratio must be minimum 100%. Citis LCR is at122% by Dec 2012. (LCR remained at 110% at June-30).So, there is an additional $65 billion capital in reserves.Overall, Citi is adequately capitalized to implement BaselIII regulations.
LOAN PROFILELoan profile Highlights Refer to Appendix 3
Corporate Loan PortfolioMaturity
Due within one year 58%Due 1-5 years 29%Due > 5 yrs 13%
Interest rate (excluding < 1 year loans)Loans at Floating rate 83%Loans at Fixed rate 17%
- It is interesting to note that Citi has lesscorporate loans (37%) and more consumer loans(63%). Almost 63% of its consumer loans are fromUS, while 58% corporate loans are international.
- Citi is focused on improving its corporate loans.Hence, there has been a steady decline in US
consumer loans and steady growth in corporateloans in US and international.
- Majority of the consumer loans are mortgage,real estate and credit card loans.
- Net CreditLosses(NCL) oncorporateloans are
very less(0.09% vs.3.49% on consumer loans); Non-Accrual Loans(NAL) on corporate are less (20% vs. 80% inconsumer loans). Majority of NALs are in runoffblock.
- Positive factor is that majority of corporate loansare floating rate (83%). When rates rise, profitsincrease with better spreads.
- Corporate loans have lower maturity (80% are
less than 5 years), but majority of mortgage loansare greater than 10 years.
- There is interest rate risk in consumer mortgageloans because 62% are fixed rate loans. However,majority are first mortgages (71%), so less risky interms of credit risk.
US Consumer Mortgage LoanPortfolioFirst mortgages 71%Second mortgages 29%Interest rate (excluding < 1 yearloans)
Loans at Floating rate 38%Loans at Fixed rate 62%
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INVESTMENT PORTFOLIO$ in millions 2012Debt securities AFS 283,753 91%Equity securities AFS 4,942 2%Debt securities HTM 10,130 3%Equities at Fair value 5,768 2%Equities at cost 7,733 2%Total Investments 312,326
About 32% of Debt Securities AFS compose of U.S.Treasury securities, while 33% composed of foreigngovernment bonds. Citi, because of its global nature ofbusiness, has highest investment in foreign bonds amongother big banks. (Closest is JPM with 29%). Sincesecurities are marked AFS, we might see a hit on bookwhen rates rise. Portfolio duration is in line with otherbanks.
Citi maintained good Net Interest Margin compared to
the peers. Last 5 year NIM avg. is 2.96%, while its closecompetitors like JPMs avg. is 2.68%, BACs at 2. 57%. OnlyWells Fargo (WFC) has a better margin at 3.86%.
LONG TERM DEBTDeposits are primary and lowest cost source of funding.Almost 78% liabilities comprise of deposits. Long termdebt is primary funding for non-bank entities. Total longterm debt by Dec 2012 was $240 billion. Almost $152billion (63%) is due in next 5 years (almost equally spread
each year). Lower maturity debt is a positive for thestock. Re cently, Fitch gave a stable outlook (A) to itslong term and short term issuer default ratings.
INVESTMENT DRIVERS
The biggest positive for Citi is its cheapervaluation. The stock is currently at $50, bookvalue is at $63, and DCF is at $57; trailing EPSmultiple is at 17x and forward multiple is 10.3x. Ithink that multiple of 10.3x is sustainablebecause Citi has shown signs of progress undernew management.
Last 5 yr. avg. ROE is at 3.9% (excluding 2008 dip),while in last 2 quarters the ROE is at a healthy8.3%. Management has talked about reachingtargeted ROE of 10%. Even applying 11x multipleto 2014 expected EPS, target price is $62. Using
SOTP valuation, we arrived at a price target of$56-65. So, cheap valuation is a key driver for ourthesis especially in this market environmentwhere most stocks have reached their 52 wk.highs.
When the rates eventually rise, we see a bullish
trend for Bank stocks because of higher spreads.Mortgage loans might cause a pullback, but risein construction loans will eventually offset theselosses.
Emerging markets has been a successful growthstory for Citi. Consumer banking division saw asteady revenue stream of deposits, while capitalmarkets division has seen tremendous growth,mainly in foreign trade transactions in Asia andM&A deals in Latin America. China and Mexico
continue to remain its key foreign branches.Recent slowdown in China, Korea and currencyfluctuations in Argentina have caused losses. Citiissued a weaker international outlook in nearterm. But, we think in longer term, over a span of3 to 5 years, Citi will benefit from its investmentsin cities where growth potential is huge. Itcontinues to restructure its foreign branches byfocusing only on profitable divisions. Recentshutdown of branches in Pakistan, Paraguay,
Uruguay, Romania, and Turkey is expected toresult in $1.1 billion cost savings a year.
Citi Holdings represents about 23% of Basel IIIRWA (around $65 billion in assets). As they trimdown assets in runoff by selling legacy mortgageloans, the capital could be freed up. Citis Baselcommon ratio is at 10%, so applying this ratio tothe risk weighted assets, we get around $6.5billion in capital that is allocated for Citi Holdings.Total Tier 1 common capital is around $110. Also,
as delinquency rates start to fall down, it canrelease loan reserves (We have seen this trend inlast few quarters). Overall, there is significantopportunity for capital returns.
Recently, Mr. Corbat got approval of Fed for $1.2billion share buyback plan. Although this move ismainly geared toward offsetting employee stockoptions, it at least shows that new managementteam is in right path to get further Fed approvals
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for buybacks. In October 2012, Mr. Corbatreplaced Vikram Pandit who had earlier failed toget Fed approval. Mr. Corbat got few new faces inthe management team in Jan 2013.(For performance appraisals, management team
is measured on ROA, ROE and operating efficiency
which is a positive for investors) Citi continues to improve capital requirementsrequired by Basel III by deleveraging its balancesheet. The Basel III tier 1 common ratio is at 10%,better than most of the big banks. The LCR is at110% by Jun 2013. (Min threshold is only 100%).Almost 63% of its long term debt is due in next 5years (evenly spread out). In summary, Citi seemsto be in a better shape to overcome Basel IIIregulations.
The legacy mortgage claim lawsuits are a bigheadache to most big banks. But, Citi recentlysettled future mortgage claims with Fannie Maeby paying $968 million from initial allocatedmortgage reserves ( includes all covered loansfrom 2000 to 2012)
INVESTMENT RISKS
Losses due to lawsuits continue to push operatingexpenses. Last year, Citi exceeded its legalreserves by $5 billion, primarily because of itssale of assets in runoff. The CEO warned investorsthat going forward legal expenses will continue tostay volatile. We have discounted this effect inthe SOTP valuation as well as in our DCFmodeling.
Citi has a bigger spread between NPL/Loans(5.76%) and LLR/Loans(3.6%). We ideally expectmore LLR than NPL. But, in a recovering economythis can be overlooked. Most of its NPLs are inrunoff segment which contains legacy mortgageloans that the firm expects to sell soon.
Few other risks include: slowdown of mortgagefinancing will affect NA consumer bankingoperations, inability to monetize DTAs, andlonger slowdown of emerging markets (especiallyKorea consumer branch).
CATALYSTS
Citi has about $55B in deferred tax assets, highestamong US public traded companies with greater
than $500M cap. These DTAs reflect losses anddeductions that get converted to tax credits. Onlyabout $14 billion of $55 billion DTAs could beaccounted under Basel III common capital, whilerest $41 billion cannot be included. In-effect, outof $151 billion in Tangible equity, $110 billioncould be used for Citicorp and Citi Holdings.
The problem for Citi is that $22B of these DTAs(mainly FTCs) expires by 2022 and company
needs to generate income in US to make use ofthese credits.
Out of the$41 billioncapital thatcannot becounted forcommoncapital, $28
billioncapital is set against both DTAs that are expiring($22B) and Total NOLs ($7.8B)
So, roughly $28 billion capital or $9/share couldbe freed up if Citi is able to realize the DTAs. Wecannot predict how much they will be able torealize, but this could be one of the futurecatalysts for the stock.
VALUATIONASSUMPTIONS
Consumer Banking North America
Citis North America Consumer banking is a well -runbusiness. Efficiency ratio(ER) by Mar 2013 is at 48% andlast 3 years avg. is 44%; competitors such as WFC haveERs of 55%, BAC at 86%. Although credit card business
$ in billion DTA Dis-allowedcapital
DTA's that areexpiring in 10years (FTCs)
22
28
Total NOLs 7.8
Other DTAs 25.5 13
Total DTA 55.3 41
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has flat profits and revenues, retail banking is on the rise.ROA is usually in 2.5-3% range. We gave a reasonablemultiple of 10x (in Normal case) to 12x (in Best case) inline with WFCs multiple of 11.4x and less than BACs15.6x. In our DCF, we estimated a steady growth in NorthAmerica banking of 3% in retail and credit cards.
Consumer Banking - International
Citis International Consumer banking segment has futuregrowth potential; China, India, Australia and Mexico aresuccess stories with rapid increase in loans and deposits,although EMEA (16% of total revenue) is struggling withefficiency ratios as high a s 97% and lower ROA. Citis peerin this segment will be Standard Chartered, which tradedat 14x multiple before Iran fiasco. Because ofinternational slowdown fears, we gave a reasonable
multiple of 12x to 14x. In our DCF, we projected slowemerging markets trend till 2016 and gradual rise later.
Securities & IB
In Securities & Banking division, lack of US M&A activityhas hurt investment banking revenue. The key advantageto Citi over its rivals is its strong presence in LatinAmerica, where margins are higher and revenues haveincreased steadily. However, Fixed income markets aremain revenue drivers (almost 60%) for this segment,while private banking is growing faster. The efficiencyratios in this segment are in 51% range, while ROA isabout 1%. I gave a conservative multiple of 9x to 11x , inline with its competitors such as Goldman Sachs (GS ) andDeutsche Bank. In our DCF, we estimate a 5% growth inFixed income markets for few years before trendingdown to normal.
Transaction services
Transaction services is a well-run business with steadyrevenue stream involving cash management and tradefinances for large institutions and security services forinvestors. The efficiency ratio is in the 52% range andROA is high at 4%. Majority of revenues come from EMEAand Asia. The downside is that this business is prone tocurrency fluctuations. We gave a premium multiple of10x to 12x for this division. We estimate a steady 3%growth rate in line with past trends.
SELLDISCIPLINE
Mgmt. has given a target ROE of 10% in next 2 years. IfROE goals fail to meet expectations, I will decide to sellthe stock because my CV ROE is around 10.8% and I seelimited upside if ROE hovers around 8-9%.
REFERENCES1. Investor day presentation made by C during
Analyst Data on May 212. 10K Filing 2012, 2011, 20103. Q2, Q1 2013 Transcripts
IMPORTANT DISCLAIMER
This report was created by a student(s) enrolled in theApplied Securities Management (Henry Fund) program atthe University of Iowas Tippie School of Management.The intent of these reports is to provide potentialemployers and other interested parties an example of theanalytical skills, investment knowledge, andcommunication abilities of Henry Fund students. HenryFund analysts are not registered investment advisors,brokers or officially licensed financial professionals. Theinvestment opinion contained in this report does notrepresent an offer or solicitation to buy or sell any of theaforementioned securities. Unless otherwise noted, factsand figures included in this report are from publiclyavailable sources. This report is not a complete
compilation of data, and its accuracy is not guaranteed.From time to time, the University of Iowa, its faculty,staff, students, or the Henry Fund may hold a financialinterest in the companies mentioned in this report.
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2012 2011 2010 2009 2008 2007Global Consumer Banking North AmericaRevenue ($ in Mil) 21,081 20,159 21,747 7,246 7,764 9,773
YoY % 5% -7% 200% -7% -21% NMOperating Income ($ in Mil) 4,815 4,095 974 354 (1,578) 1,867ROA(%) 2.8 2.5 0.6 - - -Efficiency Ratio(%) 47 48 39 - - -Avg. Deposit($ in Bil) 154 145 145 137 123 120NCL /Loans (%) 3.8 5.5 8.7 5.8 3.6 2.7EMEARevenue ($ in Mil) 1,516 1,558 1,559 1,555 1,865 1,587
YoY % -3% 0% 0% -17% 18% NMOperating Income ($ in Mil) (18) 95 97 (209) 38 78ROA(%) (0.2) 1.0 1.0 (1.9) 0.3 0.8Efficiency Ratio(%) 95 86 79 - - -Avg. Deposit($ in Bil) 13 13 14 9 11 9NCL /Loans (%) 1.4 2.4 4.4 5.8 2.5 1.6Latin AmericaRevenue ($ in Mil) 9,702 9,469 8,667 7,354 8,758 8,279
YoY % 2% 9% 18% -16% 6% NMOperating Income ($ in Mil) 1,510 1,578 1,788 323 (3,348) 1,616ROA(%) 1.9 2.0 2.5 0.5 (4.4) 2.6Efficiency Ratio(%) 59 61 59 - - -Avg. Deposit($ in Bil) 45 46 40 36 40 38NCL /Loans (%) 4.3 4.7 6.1 8.6 7.1 4.6AsiaRevenue ($ in Mil) 7,915 8,009 7,396 6,616 7,287 7,004
YoY % -1% 8% 12% -9% 4% NMOperating Income ($ in Mil) 1,797 1,904 2,110 1,423 1,736 2,010ROA(%) 1.4 1.6 2.0 1.6 1.9 2.3Efficiency Ratio(%) 60 58 55 - - -Avg. Deposit($ in Bil) 111 111 100 89 93 89NCL /Loans (%) 1.0 1.0 1.4 2.0 1.4 1.0Securities & BankingRevenue by product ($ in Mil)Investment Banking 3,641 3,310 3,828 4,763 3,245 5,570Fixed income markets 13,961 10,891 14,265 21,540 14,395 11,507Equity markets 2,418 2,402 3,710 3,182 2,878 5,202Lending 997 1,809 971 (2,153) 4,220 1,814Private Bank 2,314 2,138 2,009 2,054 2,309 2,473Others (1,101) (859) (1,262) (1,740) (2,112) (1,210)Revenue by Region ($ in Mil)North America 6,104 7,558 9,393 2,417 2,275 1,687EMEA 6,417 7,221 6,849 3,393 656 1,595Latin America 3,019 2,370 2,554 1,512 1,048 1,436Asia 4,203 4,274 4,326 1,830 1,973 1,795Total revenues 19,743 21,423 23,122 27,646 24,935 25,356
YoY % -8% -7% -16% 11% -2% NMOperating Income ($ in Mil) 4,495 4,913 6,551 9,152 5,952 6,513ROA(%) 0.5 0.6 0.8 1.2 0.6 0.6Efficiency Ratio(%) 73 70 63 - - -Transaction ServicesRevenues($ in Mil) 10,857 10,579 10,085 9,789 9,946 8,098
YoY % 3% 5% 3% -2% 23% NMOperating Income ($ in Mil) 3,495 3,349 3,622 3,736 3,353 2,456ROA(%) 2.5 2.6 3.4 6.2 4.7 3.5Efficiency Ratio(%) 53 54 50 - - -Citi HoldingsRevenues($ in Mil) (833) 6,271 12,271 30,635 (6,698) 19,513Operating Income ($ in Mil) (10,972) (6,230) (7,248) (8,239) (36,012) (8,692)ROA(%) (3.4) (1.6) (1.1) - - -
APPENDIX 1
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Appendix 2: Capital and Liquidity
2Q' 13 1Q' 13 4Q'1 2 3Q '12 2Q'12 1Q'12 2011 2010 2009 2008 2007 2006 2005 2004
Tier 1 Common Basel I(> 6%) 12.2 11.8 12.7 12.7 12.7 12.5 11.8 10.8 9.6 2.3 5.0 7.5 7.9 7.8
Tier 1 Common Basel III 10.0 9.3 8.7 8.6 7.9 7.2 - - - - - - -
Tier 1 Capital Basel I(> 10%) 13.3 13.1 14.1 13.9 14.5 14.3 13.6 12.9 11.7 11.9 7.1 8.6 8.8 8.7
Leverage (> 5%) 7.9 7.8 7.5 7.4 7.7 7.6 7.2 6.6 6.9 6.1 4.0 5.2 5.4 5.2
Risk-based Capital Ratio 16.3 16.1 17.3 17.1 17.7 17.6 17.0 16.6 15.3 15.7 10.7 11.7 12.0 11.9
($ in Billion)
Tier 1 Common Capital 132 128 123 124 124 122 115 105 104 23 63 79 70 66
Tier 1 Capital 143 141 137 136 141 139 132 126 127 119 89 91 78 74
Total Risk-based Capital 176 174 168 167 173 172 165 162 166 156 134 123 106 101
Total Risk-adjusted Assets 1,078 1,080 971 975 978 974 973 978 1,089 996 1,253 1,058 885 852
Citibank N.A Tier 1 Common ratio - 13.7 14.1 15.3 15.2 15.5 14.6 15.1 13 - - - - -
Tier 1 Capital ratio - 13.7 14.2 15.4 15.2 15.5 14.7 15.2 13 10 9 8 - -
Leverage ratio - 9.4 9.0 9.7 9.9 10.1 9.7 8.9 8 5.8 6.7 6.1 - -
Appendix 3: Loan profile$ in million 2012 2011 2010 2009 2008
Provision for Loan Losses 10848 11773 25194 38760 33674
Net Credit Losses 14576 20038 30859 30741 19011
Net Consumer Credit Losses/Consumer Loans 3.49% 4.20% 5.74% 5.43% 3.34%
Net Corporate Credit Losses/Consumer Loans 0.09% 0.79% 1.27% 3.13% 0.84%
Total NALs 11529 11068 19407 31740 22297
NALs by business
Citicorp NALs 36% 36% 25% 17% 15%
Citiholdings NALs 64% 64% 75% 83% 85%
NALs by Loan type
Corporate NALs 20% 29% 44% 42% 44%
Consumer NALs 80% 71% 56% 58% 56%
NPA / Assets 2.08 2.24 2.48 2.66 1.84
NPL / Loans 5.76 6.29 6.94 7.97 4.85
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Appendix 4
Net Income ($ in Mill) Q1 2013 Q2 2013 Q3 2012 Q4 2012 Total
Consumer banking NA 1113 1123 1299 1064 4599
Consumer banking International 794 826 869 931 3420
Securites and Banking 2503 2080 1619 1099 7301
Transaction services 764 803 843 869 3279
Citiholdings -788 -579 -679 -1021 -3067
Corporate -388 -322 -637 -675 -2022
Total NI 13510
Shares outstanding (in Mill) 3,044
Normal case Best case Consumer banking P/E
EPS Multiple Value Multiple Value JPM 9.5
Consumer banking NA 1.51 10 15.11 11 16.62 BAC 15.6
Consumer banking International 1.12 12 13.48 13 14.61 WFG 11.4
Securities and Banking 2.40 10 23.98 12 28.78 12.17
Transaction services 1.08 10 10.77 11 11.85 Capital markets P/E
Citiholdings (1.01) 3 (3.02) 3 (3.02) MS 13.9
Corporate (0.66) 3 (1.99) 3 (1.99) GS 10.9
Future Legal costs (2.30) 1 (2.30) 1 (2.30) DBK 9.2
Target 56.0 64.5 11.33
Return 12% 29%
Current 50
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C 50.00$
. 31 $57 60
( ) 3.87% 30
B 1.39 2 5.60%
C ( ) 11.7%
C 3.25%C 10.79%
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. ( : ) 2010 2011 2012 2013 2014 2015 2016 2017
B 5,323 5,113 6,677 6,877 7,118 7,403 7,699 7,930 8,160
C 9,695 8,730 8,323 8,573 8,916 9,281 9,625 10,010 10,320 6,729 6,316 6,081 6,203 6,327 6,453 6,582 6,714 6,781
B 878 890 889 899 909 919 929 939 949 C 681 668 627 646 665 685 706 727 741
B 5,016 5,468 5,766 6,112 6,418 6,738 7,075 7,358 7,645
C 3,651 4,001 3,936 4,133 4,381 4,556 4,738 4,928 5,115
B 4,657 4,927 4,727 4,963 5,187 5,394 5,599 5,823 6,050 C 2,739 3,082 3,188 3,347 3,468 3,589 3,701 3,867 4,026
39,369 39,195 40,214 41,753 43,387 45,019 46,653 48,295 49,788 &
B 3,828 3,310 3,641 3,787 3,957 4,194 4,404 4,580 4,713 14,265 10,891 13,961 14,589 15,465 16,764 17,820 18,711 19,553
3,710 2,402 2,418 2,442 2,454 2,472 2,491 2,516 2,529 971 1,809 997 957 919 891 873 880 889
B 2,009 2,138 2,314 2,407 2,491 2,578 2,660 2,746 2,801 (1,262) (859) (1,101) (1,101) (1,101) (1,101) (1,101) (1,101) (1,101)
C A/D A (399) 1,732 (2,487) (2,487) (2,487) (2,487) (2,487) (2,487) (2,487) 23,122 21,423 19,743 20,594 21,698 23,311 24,661 25,845 26,896
A 2,485 2,444 2,564 2,641 2,720 2,802 2,886 2,972 3,059
A 3,356 3,486 3,576 3,683 3,801 3,923 4,048 4,170 4,257 A 1,530 1,713 1,797 1,887 2,000 2,110 2,216 2,326 2,373
A 2,714 2,936 2,920 2,949 2,982 3,023 3,087 3,158 3,221 10,085 10,579 10,857 11,160 11,503 11,858 12,237 12,626 12,910
/ 1,754 885 192 192 192 192 192 192 192 12,271 6,271 (833)
86,601 78,353 70,173 73,699 76,780 80,380 83,743 86,959 89,786
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. ( : ) 2011 2012 2013 2014 2015 2016 2017
B 3.9% 30.6% 3% 3 .50% 4.0% 4.0% 3.0% 2.9%
C 10.0% 4.7% 3.0% 4.0% 4.1% 3.7% 4.0% 3.1% 6.1% 3.7% 2.0% 2.0% 2.0% 2.0% 2.0% 1.0%
B 1.4% 0.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1%C 1.9% 6.1% 3.0% 3.0% 3.0% 3.0% 3.0% 2.0%
B 9.0% 5.4% 6.0% 5.0% 5.0% 5.0% 4.0% 3.9%
C 9.6% 1.6% 5.0% 6.0% 4.0% 4.0% 4.0% 3.8%
B 5.8% 4.1% 5.0% 4.5% 4.0% 3.8% 4.0% 3.9%C 12.5% 3.4% 5.0% 3.6% 3.5% 3.1% 4.5% 4.1%
0.4% 2.6% 3.8% 3.9% 3.8% 3.6% 3.5% 3.1% &
B 13.5% 10.0% 4.0% 4.5% 6.0% 5.0% 4.0% 2.9% 23.7% 28.2% 4.5% 6.0% 8.4% 6.3% 5.0% 4.5%
35.3% 0.7% 1.0% 0.5% 0.7% 0.8% 1.0% 0.5% 86.3% 44.9% 4.0% 4.0% 3.0% 2.0% 0.8% 1.0% B 6.4% 8.2% 4.0% 3.5% 3.5% 3.2% 3.2% 2.0%
31.9% 28.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%C A/D A 534.1% 243.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
7.3% 7.8% 4.3% 5.4% 7.4% 5.8% 4.8% 4.1%
A 1.6% 4.9% 3.0% 3.0% 3.0% 3.0% 3.0% 2.9%A 3.9% 2.6% 3.0% 3.2% 3.2% 3.2% 3.0% 2.1%
A 12.0% 4.9% 5.0% 6.0% 5.5% 5.0% 5.0% 2.0%A 8.2% 0.5% 1.0% 1.1% 1.4% 2.1% 2.3% 2.0%
4.9% 2.6% 2.8% 3.1% 3.1% 3.2% 3.2% 2.2%
/ 49.5% 78.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 48.9% 113.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
9.5% 10.4% 5.0% 4.2% 4.7% 4.2% 3.8% 3.3%
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Citigroup Inc. (NYSE: C)(in millions) 2010 FY 2011 FY 2012 FY 2013 E 2014 2015 2016 2017 RevenuesTotal revenues, net of interest expense 86,601 78,353 70,173 73,699 76,780 80,380 83,743 86,959 89,786
rov s ons or cre osses an or ene s anclaims Provision for loan losses 25,194 11,773 10,848 9,581 9,214 8,842 9,212 9,566 8,979
Policyholder benefits and claims 965 972 887 1,105 1,152 1,206 1,256 1,304 1,347 rov s on (re ease) or un un e en ngcommitments (117) 51 (16) 74 77 80 84 87 90
Total provisions for credit losses and for benefitsand claims 26,042 12,796 11,719 10,760 10,442 10,128 10,552 10,957 10,415Operating expenses Compensation and benefits 24,430 25,688 25,204 23,584 23,802 24,114 22,611 24,349 24,242 Premises and equipment 3,331 3,326 3,282 3,464 3,609 3,778 3,936 4,087 4,220
Technology/communication 4,924 5,133 5,914 6,633 7,294 8,038 10,049 8,696 8,081 Advertising and marketing 1,645 2,346 2,224 2,579 2,687 2,813 2,931 3,044 3,143 Other operating 13,045 14,440 13,894 12,529 13,053 13,665 14,236 14,783 15,264
Total operating expenses 47,375 50,933 50,518 48,789 50,444 52,408 53,763 54,958 54,949ncome ( oss) rom con nu ng opera ons e ore
income taxes 13,184 14,624 7,936 14,150 15,893 17,844 19,428 21,044 24,422Provision for income taxes Provision for income taxes 2,233 3,521 27 147 614 402 251 522 718
Income from continuing operations 10,951 11,103 7,909 14,003 15,279 17,442 19,177 20,522 23,703Income from dis-continued operations (68) 112 (149) 74 77 80 84 87 90 e ncome e ore a r u on o noncon ro ng
interests 10,883 11,215 7,760 14,076 15,356 17,523 19,261 20,609 23,793Noncontrolling interests 281 148 219 221 230 241 251 261 269 Citigroup's net income 10,602 11,067 7,541 13,855 15,126 17,282 19,010 20,348 23,524Basic earnings per share e ncome ac ua 3.65 3.73 2.51 4.54 5.03 5.75 6.74 6.77 7.24Weighted average common shares outstanding 2,905 2,967 3,004 3,050 3,010 3,005 2,820 3,004 3,250 Diluted earnings per share Net income (actual) 3.54 3.63 2.44 4.41 4.88 5.59 6.53 6.58 7.05
us e we g e average common s aresoutstanding 2,995 3,049 3,091 3,139 3,099 3,094 2,909 3,093 3,339
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Citigroup Inc. (NYSE: C)(in millions) 2010 FY 2011 FY 2012 FY 2013 E 2014 E 2015 E 2016 E 2017 E CVRevenuesTotal revenues, net of interest expense 100% 100% 100% 100% 100% 100% 100% 100% 100%Provisions for credit losses and for benefits and claims Provision for loan losses 29.1% 15.0% 15.5% 13.0% 12.0% 11.0% 11.0% 11.0% 10.0% Policyholder benefits and claims 1.1% 1.2% 1.3% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Provision (release) for unfunded lending commitments -0.1% 0.1% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Total provisions for credit losses and for benefits and claims 30.1% 16.3% 16.7% 15.3% 14.9% 14.4% 15.0% 15.6% 14.8%Operating expenses Compensation and benefits 28.2% 32.8% 35.9% 32.0% 31.0% 30.0% 27.0% 28.0% 27.0% Premises and equipment 3.8% 4.2% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% Technology/communication 5.7% 6.6% 8.4% 9.0% 9.5% 10.0% 12.0% 10.0% 9.0% Advertising and marketing 1.9% 3.0% 3.2% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Other operating 15.1% 18.4% 19.8% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% Total operating expenses 54.7% 65.0% 72.0% 69.5% 71.9% 74.7% 76.6% 78.3% 78.3%Income (loss) from continuing operations before income taxes 15.2% 18.7% 11.3% 20.2% 22.6% 25.4% 27.7% 30.0% 34.8%Provision for income taxes Provision for income taxes 2.6% 4.5% 0.0% 0.2% 0.8% 0.5% 0.3% 0.6% 0.8%Income from continuing operations 12.6% 14.2% 11.3% 20.0% 21.8% 24.9% 27.3% 29.2% 33.8%Income from dis-continued operations -0.1% 0.1% -0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%Net income before attribution of noncontrolling interests 12.6% 14.3% 11.1% 20.1% 21.9% 25.0% 27.4% 29.4% 33.9%Noncontrolling interests 0.3% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Citigroup's net income 12.2% 14.1% 10.7% 19.7% 21.6% 24.6% 27.1% 29.0% 33.5%
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Citigroup Inc. (NYSE: C)2009 FY 2010 FY 2011 FY 2012 FY 2013 E 2014 E 2015 E 2016 E 2017 E CV
Assets ($000)Cash and Due from Banks 1.4% 1.5% 1.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%Fed Funds Sold 0.00% 0.01% 0.00% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Deposits at Financial Institutions 9.0% 8.5% 8.3% 5.5% 5.5% 5.6% 5.6% 5.6% 5.7% 5.7%Securities Purchased, to Resell 5.7% 6.8% 8.2% 7.4% 7.5% 7.6% 7.7% 7.7% 7.8% 7.9%Other Cash & Cash Equivalents 6.3% 6.1% 6.5% 6.6% 6.5% 6.5% 6.6% 6.7% 6.9% 7.2%
Cash and Cash Equivalents 22.3% 22.8% 24.6% 21.4% 21.5% 21.7% 21.9% 22.1% 22.4% 22.8%
Trading Account Securities 18.5% 16.6% 15.6% 17.2% 17.2% 17.1% 17.0% 17.0% 16.9% 16.8%Available for Sale Securities 12.9% 14.3% 14.2% 15.5% 15.6% 15.7% 15.8% 15.9% 15.9% 16.0%Held to Maturity Securities 2.8% 1.5% 0.6% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6%Other Securities 0.8% 0.8% 0.9% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
Total Cash & Securities 57.3% 56.0% 55.8% 55.4% 55.6% 55.8% 56.0% 56.2% 56.5% 56.8%Gross Loans Held for Investment 31.9% 33.9% 34.5% 35.2% 35.0% 34.9% 34.7% 34.5% 34.3% 34.0%Loan Loss Reserve 1.9% 2.1% 1.6% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3%Loans Held for Sale 0.5% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Total Net Loans 30.4% 32.4% 33.6% 34.3% 34.2% 34.1% 33.9% 33.7% 33.5% 33.2%Real Estate Owned and Held for Investment 0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Goodwill 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3%ntangible Assets other than Goodwill 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Loan Servicing Rights 0.4% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%Credit Card Rights 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%Total Other Assets 10.0% 9.5% 8.7% 8.4% 8.4% 8.4% 8.3% 8.3% 8.2% 8.2%
Total Assets 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Liabilities ($000)Total Deposits 49.1% 48.3% 51.1% 55.6% 55.5% 55.3% 55.2% 55.0% 54.9% 54.7%Senior Debt 31.5% 34.4% 31.3% 27.7% 27.9% 28.1% 28.3% 28.4% 28.6% 28.8%Total Subordinated Debt 3.0% 2.7% 2.7% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.2%
Total Debt 34.5% 37.2% 34.0% 30.0% 30.2% 30.4% 30.5% 30.7% 30.9% 31.0%Total Other Liabilities 16.4% 14.5% 14.9% 14.4% 14.3% 14.3% 14.3% 14.3% 14.2% 14.2%
Total Liabilities 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Equity ($000)Total Preferred Equity 0.2% 0.2% 0.2% 1.3% 1.3% 1.2% 1.2% 1.1% 1.0% 0.9%Common Equity 98.3% 98.4% 98.8% 97.6% 97.7% 97.8% 97.9% 98.0% 98.1% 98.2%Noncontrolling Interests 1.5% 1.4% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9%
Total Equity 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
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Citigroup Inc. (NYSE: C)in millions) 2013 E 2014 E 2015 E 2016 E 2017 E CV
Net cash provided by (used in) operating activitiesNet income (loss) 13,855,358 15,125,604 17,281,624 19,009,692 20,348,439 23,523,892 hange in Assets
Cash and Due from Banks (729,060) (743,641) (758,514) (773,684) (789,158) (804,941) Fed Funds Sold (1,164) (1,178) (1,192) (1,206) (1,221) (1,236) Deposits at Financial Institutions (2,246,948) (2,296,381) (2,346,901) (2,398,533) (2,451,301) (2,505,229) Securities Purchased, to Resell (3,463,725) (3,550,318) (3,639,076) (3,730,053) (3,823,304) (3,918,887) Total Net Loans (6,402,760) (6,466,788) (6,531,455) (6,596,770) (6,662,738) (6,729,365) Real Estate Owned and Held for Investment (7,610) (7,686) (7,763) (7,841) (7,919) (7,998) Goodwill (256,730) (259,297) (261,890) (264,509) (267,154) (269,826) ntangible Assets other than Goodwill (37,910) (38,289) (38,672) (39,059) (39,449) (39,844)
Loan Servicing Rights (19,420) (19,614) (19,810) (20,008) (20,209) (20,411) Credit Card Rights (19,060) (19,251) (19,443) (19,638) (19,834) (20,032) Total Other Assets (1,571,580) (1,587,296) (1,603,169) (1,619,200) (1,635,392) (1,651,746) Change in Liabilities Total Deposits 10,236,160 10,348,758 10,462,594 10,577,683 10,694,037 10,811,672 Total Other Liabilities 2,884,524 2,919,138 2,954,168 2,989,618 3,025,493 3,061,799
Net cash provided by (used in) operating act ivities 12,220,075 13,403,762 15,470,499 17,106,491 18,350,290 21,427,848 Cash flows from investing activitiesChange inTrading Account Securities (3,530,219) (3,569,051) (3,608,311) (3,648,002) (3,688,130) (3,728,700) Available for Sale Securities (6,062,595) (6,189,909) (6,319,898) (6,452,615) (6,588,120) (6,726,471) Held to Maturity Securities (192,470) (196,127) (199,853) (203,651) (207,520) (211,463)
Other Securities (270,020) (275,420) (280,929) (286,547) (292,278) (298,124) Net cash provided by (used in) investing activities (10,055,304) (10,230,508) (10,408,991) (10,590,816) (10,776,049) (10,964,757)
Cash flows from financing activitiesNet change in Total debt 9,670,290 9,859,854 10,053,170 10,250,314 10,451,361 10,656,390 Change in preferred equity (76,860) (74,554) (72,318) (70,148) (68,044) (66,002) Change in common equity (11,189,220) (11,349,188) (11,575,773) (11,918,124) (12,343,618) (12,823,908)Change in non-controlling 7,792 7,823 7,854 7,886 7,917 7,949
Net cash provided by (used in) financing activities (1,587,998) (1,556,066) (1,587,067) (1,730,073) (1,952,383) (2,225,571) Net Increase/Decrease in Cash 576,773 1,617,188 3,474,442 4,785,603 5,621,858 8,237,520 Total Cash Beginning of year 122,665,000 123,241,773 124,858,961 128,333,403 133,119,006 138,740,864Total Cash End of the year 123,241,773 124,858,961 128,333,403 133,119,006 138,740,864 146,978,384
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:C 3.25%C ( ) 11.65%C 10.79%
2013 2014 2015 2016 2017
13855 15126 17282 19010 20348 23524
( ) C A 25388 26837 29111 30847 32116 35172(+) C 22791 23128 23470 23818 24171 24530
C 11258 11416 11640 11980 12404 12882C 195,638 D 10083 9157 8363 7709 7148 112,741
C 155200 3,004
/ 51.6657.15 ( 2013)
( ) 13855 15126 17282 19010 20348 23524
(B . ) 190997 193594 197304 202945 209974 217919 ( ) 7.25% 7.81% 8.76% 9.37% 9.69% 10.79%
(B . *( )) 8403 7436 5712 4642 4122 1872C (22,282) D 7526 5965 4104 2987 2375 12840
35797 + 2012 155200
3004/ 51.66
57.15 ( 2013)
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Company Name TickerP/EPS
2013P/EPS
2014 P/BookP/Tang.
Book ROE(%)Bank of America BAC 16.38 11.20 0.74 1.11 3.7JPMorgan Chase JPM 12.32 9.15 1.07 1.44 8.7Wells Fargo WFC 11.31 10.85 1.50 1.89 13.3US Bank USB 12.73 11.98 1.98 2.76 14.6
Deutsche Bank DBK 10.93 7.95 1.29 4.62 NAMedian 12.3 10.9 1.3 1.9 11.00Average 12.7 10.2 1.3 2.4 10.08
Citigroup C 10.72 9.30 0.79 0.93 6.46Value Weight
Price / EPS 2013 12.32 55.97 20%Price / EPS 2014 10.85 54.52 30%Price / Book 1.29 81.75 50%
Target 68.43
Relative Valuation
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($ ) 1 2013 2 2013 3 2012 4 2012 1113 1123 1299 1064 4599 794 826 869 931 3420
2503 2080 1619 1099 7301 764 803 843 869 3279
788 579 679 1021 3067 388 322 637 675 2022
13510 ( ) 3,044 /
9.5 1.51 10 15.11 11 16.62 BAC 15.6 1.12 12 13.48 13 14.61 11.4
2.40 10 23.98 12 28.78 12.17 1.08 10 10.77 11 11.85 /
(1.01) 3 (3.02) 3 (3.02) 13.9(0.66) 3 (1.99) 3 (1.99) 10.9
(2.30) 1 (2.30) 1 (2.30) DB 9.2 56.0 64.5 11.33
12% 29% 50