Citigroup Inc (NYSE:C) Still Undervalued by the Market

June 2, 2017

Chief Investment Officer John Dowling of Golub Group says Citigroup Inc (NYSE:C) is still a black sheep in the banking market, yet its core franchises remain intact and profitable.

Citi has done well, but I think the market is still undervaluing the business. And this whole deregulatory process has provided a catalyst for the banks, but they have pulled back a little bit recently.

And what’s interesting, at least in regard to the stress test, is that you don’t need any legislation to go through for the burden of the stress test to be reduced. You just need President Trump to appoint the new Vice Chair of Federal Reserve for Supervision who will have oversight over the stress test, and even small changes in that burden can actually be a needle-mover for banks. Once Trump does that, he’ll just need 51 votes in the Senate to pass that through confirmation, and we believe that whomever that ends up being will reduce the burden a little bit.

We think the U.S. banks have, in aggregate, over $200 billion in excess capital. And Citi really is sort of the black sheep, and yes, there are risks with Citi that are different than, say, Bank of America (NYSE:BAC) or Wells Fargo (NYSE:WFC), the latter being domestic banks that have low-cost deposit bases that allows them to earn fatter spreads than Citi. But we still think Citi is undervalued. The core retail-, investment- and custodial-banking franchises, having gone through bankruptcy, remain fully intact. They’re very profitable.