Last year, Citigroup (C) showed steady revenue growth. But as the coronavirus hit the global economy, and as political tensions shook major international clients and key markets, investors may have concerns that they could increase profits from their stocks.
Citigroup shares are now at an altitude close to pre-crisis. But given that the business is concentrated more outside the U.S., unlike competitors among the major banks, the company can better predict global changes for its clients, the company said. But it also means that it is more vulnerable to friction abroad. And, as with other banks, its profits suffer when the Federal Reserve cuts interest rates.
Today we're going to consider whether it's worth buying Citigroup shares.
The best shares, according to IBD standards, can provide a stable increase in profits. Citigroup's profit last went down in 2016. Since then, the bank has been supporting positive revenue growth.
The company increased its profit by 25% in 2018. In 2019, profit growth slowed to 20%. Citigroup is expected to increase profits by 5% this year.
During the third quarter, Citigroup's results were mixed, with EPS forecasts exceeded and earnings below expectations. But the important profitability indicator - ROTE - reached 12.2%, exceeding the bank's target for this year at 12%. In the fourth quarter, the bank's results exceeded expectations.
Reorganization efforts may also affect future revenues and profit growth. In 2018, Citigroup restructured its U.S. retail banking business to work more closely with and accelerate its lending business. Citigroup is also reported to be combining its investment banking business with its Capital Markets division.
As of March, the coronavirus had infected over 120,000 people worldwide and killed over 4,000. The World Health Organization has officially declared the outbreak a pandemic. There were more than 1000 cases in the United States. The Federal Reserve has slowed the pace to preserve the U.S. economy. But the rate cuts damaged the banks' profits.
And as parts of the supply chain narrowed and business slowed, demand for oil fell. However, Saudi Arabia reduced oil prices in March after Russia refused to agree to cut production, thus collapsing oil prices even lower. The course of the Kingdom could have reduced small oil companies and hurt the banks that lent them money.
However, the shakes in the market have damaged Citi's investment banking business, which helps corporations in matters such as mergers and placements. The company said it expects the division's revenues to fall. It also expects a modest drop in total net interest income.
Mason said he also expects the bank's consumer business revenues to decline in Asia, where the coronavirus outbreak first began in China and has spread to countries such as South Korea and Japan.
That region accounts for about one-fifth of Citigroup's revenue, he said. People-to-people activities have stopped, he said. But businesses where activity can be done online, such as trading, are still active.
"The question is whether that is a slowdown or a complete loss of business activity," Mason said of the Coronavirus.
According to Mason, Citi has issued corporate loans worth about $59 billion to clients in the energy sector. He said he is generally satisfied with the quality of the loans Citi has provided, but the company is looking for early warning signs as the proliferation of the coronavirus threatens to scare clients and businesses away from everyday business activity.
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