Of all the biggest U.S. banks Citigroup Inc. (NYSE:C) is the only one whose price remains below its book value. After topping that level during the first quarter of 2018, Citigroup stock is back to trading at less than the book value of its assets, opening for trade June 6 at about .94 below it’s book value.
By way of comparison, even the scandal-plagued Wells Fargo & Co. (NYSE:WFC) now trades at 1.49 times its book value. Bank of America Corp. (NYSE:BAC) is at 1.24 and JP Morgan Chase & Co. (NYSE:JPM) leads the way at 1.6.
Price to book compares the price being paid for a bank stock to the book value of its equity. I call it the “Mendoza Line” of bank value, after the Pittsburgh Pirates infielder who had a long career despite hitting about .200. Citigroup’s been trading below book now for longer than Mendoza was in the majors.
Scandals Keep Coming
How can this be? The financial panic happened a decade ago. Every other big bank has recovered.
It’s because Citigroup remains the most global of the big banks, and those operations keep collecting scandals like feral cats collect fleas. Here are the bank’s latest hits:
- Citigroup is sending $330 million back to credit card customers after overcharging them on interest.
- Citigroup has been fined for misleading student loan borrowers, and for other student loan shenanigans that went on until 2015.
- Citigroup N.A. in South Africa is being fined for helping manipulate the value of South Africa’s currency.
- Citigroup is paying a fine for rigging Libor, the London Interbank rate banks charge one another for loans.
- Citigroup is exposed in the accounting scandal that is overtaking Steinhoff International Holdings NV, a South Africa-based retailer. Some $21 billion is at stake.
These aren’t the worst of it. The worst of it involves an Australian bank, ANZ, which hired Citigroup, JPMorgan and Deutsche Bank AG (USA) (NYSE:DB) to run a $1.9 billion stock underwriting in 2015. Australia has now brought criminal charges and, while the defendants all say they did nothing wrong, we are taking here about jail time.
Is Citigroup Stock Still a Bargain?
Wall Street analysts have been recommending Citigroup as a bargain for years but the continuing scandals have made fools of them.
It’s true that over the last five years Citigroup stock is up 29%. But the Dow Jones average is up 60% in that time. JP Morgan Chase is up 97% in that time, Bank of America 117%. The big story has been the replacement of Wells Fargo with JPMorgan as the big bank with the best reputation, with Bank of America’s reputation for probity rising steadily, and that’s reflected in the price to book.
Analysts still like Citigroup stock, with most having buy or overweight recommendations on it, and just one saying sell. The average target price is over $83 per share, which would be a nice gain if it comes true.
Citigroup delivered $4.6 billion in net income during the March quarter, about $1.80 per share, and it’s expected to deliver $1.56 per share in earnings on revenue of $18.56 billion when it next reports July 13. It now delivers a dividend of $1.28 per year, a yield of 1.85%.
The Bottom Line on Citigroup Stock
In journalism they say that trust is the coin of the realm and that is true in banking as well. It’s a good rule of thumb when deciding which bank stocks to buy.
The continuing troubles at Citigroup, and the stock’s price, prove the point.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
