Citigroup Analyzed After Bank Fails Stress Test

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Fifteen of the nation’s largest — 19 largest banks passed the hypothetical tests which looked at their ability to withstand another severe recession. Citigroup (NYSE:C) was among those that didn’t pass. And today, shares fell over 3 percent as investors weighed the failing grade received by nation’s third largest bank. Erika Miller takes a look at what’s in store for Citi shareholders.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT : One day after getting snubbed by the Federal Reserve, Citi shareholders are perplexed. The Fed says the nation’s third largest bank isn’t worthy of an invitation to the big bank party. Yet, Citi says its capital levels are strong and it would’ve passed the Fed’s dreamed-up doomsday scenario if it hadn’t asked permission to up its dividend. Still, it’s hard to say what’s worse for Citi — no tasty dividend or no invite to the Fed’s exclusive party? But some analysts say investors should not worry. The bank led by CEO Vikram Pandit is in good hands.

JIM SINEGAL, BANKING ANALYST, MORNINGSTAR: I think Pandit put forth a sound strategy, a more focused strategy than Citigroup (NYSE:C) had in the past, and, you know, I think he’s on the right track. I don’t think this tenth of a percent below the regulator’s guidelines is really cause for concern.

MILLER: Investors have good reason to be concerned. Citi was one of the most damaged firms during the financial crisis, desperately in need of government bailouts. And even though the bank has clawed its way back, a Fed- approved dividend would be the stamp of approval shareholders have been waiting for. 2012 has been a decent year for Citi shareholders, as it’s been for most bank stock investors. Still, Citi shares are down more than 20 percent from their year-ago price of $45 a share. Market pros are mixed on the outlook for the shares, with analyst David Trone only lukewarm.

DAVID TRONE, BANKING ANALYST, JMP SECURITIES: We’re neutral on Citi. We think there are other stocks that are more interesting in our space. But the scenario of the company being in deep trouble like they were, you know, in 2008, that’s behind them.

MILLER: Morningtar analyst Sinegal has a target price for Citi of $50 a share.

SINEGAL: I think really what Citi needs to do is just avoid major mistakes over the next few quarters, build a little bit of capital, you know, show investors what kind of profitability it’s capable of, and, you know, I wouldn’t be surprised if the stock rallies in that case.

MILLER: Still, that could be a tall order even for one of America’s biggest banks. After all, the world economy also to needs to lend Citi a helping hand. Erika Miller, NIGHTLY BUSINESS REPORT, New York.


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