Insights

Here’s Why Citigroup Fell 24% in the First Half of 2022

What happened

Shares of Citigroup (NYSE: C) fell nearly 24% during the first six months of 2022, according to data provided by S&P Global Market Intelligence. The bank struggled along with the broader sector but also ran into hiccups amid its multiyear transformation plan.

So what

Since Jane Fraser took over as CEO of Citigroup in early 2021, the bank has been working on a multiyear transformation plan to correct regulatory issues, modernize parts of the bank, and try to boost returns, which have disappointed for years.

While the plan has promise, it has not come without issues. While exiting its consumer-banking operations in many international markets, Citigroup has had to take write-downs. In Russia, the bank is working to sell its consumer-banking operations but may not be able to because of Russia’s ongoing invasion of Ukraine.

At the bank’s highly anticipated Investor Day in February, investors were not impressed when management promised a medium-term return on tangible common equity (ROTCE) of 11% to 12%, which is still far below the targets of its large-bank peers.

Most recently at the end of June, the Federal Reserve released the results of its annual stress testing, and Citigroup performed worse than expected, which means the bank will face higher regulatory capital requirements starting in 2023. This will make share repurchases for the remainder of 2022 difficult because Citigroup needs to build capital to reach its new capital requirements.

Now what

Investors sold stocks intensely in the first half of the year, so mistakes by individual companies were exacerbated. The market left little margin for error as it battled high inflation and prepared for a looming recession.

Citigroup currently trades at a huge discount to its tangible book value (TBV), or net worth, at just 58% of TBV. While some believe the stock is a value trap, I think management is finally heading in the right direction. The bank is heavily investing to fix regulatory issues and modernize its operations, while also investing in businesses that already perform well.

Selling the international consumer-banking operations, including in the bank’s highly profitable Mexican subsidiary, Citibanamex, has been a messy process. But it should pay off by freeing up capital and potentially lowering Citigroup’s regulatory capital requirements.

In the first quarter of the year, the longtime bank investors Warren Buffett and Berkshire Hathaway took a new position in Citigroup for the first time since 2001, hinting that they too feel Citigroup is on the right path. This may be a multiyear story, but I do think Citigroup is a buy and has lots of upside ahead.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info