4. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 79
Citigroup Inc. (NYSE:C) is a financial service holding company that provides various financial products and services to consumers, corporations, governments, and institutions. On December 14, Wells Fargo analyst Mike Mayo maintained an Overweight rating on Citigroup Inc. (NYSE:C) stock and raised the price target to $60 from $55, noting that downward re-rating of bank stocks should reverse in 2024.
At the end of the third quarter of 2023, 79 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Citigroup Inc. (NYSE:C), compared to 75 in the previous quarter worth $6.5 billion.
In its Q3 2023 investor letter, Silver Beech Capital, an asset management firm, highlighted a few stocks and Citigroup Inc. (NYSE:C) was one of them. Here is what the fund said:
“Citigroup (“Citi”) is a large-capitalization global diversified financial services holding company that primarily serves multinational institutional and high net worth consumer clients. Citi is one of three large American banks to be designated in “bucket 3 or 4” of the “global systemically important bank” (“G-SIB”) framework by The Basel Committee on Banking Supervision. The other banks in this group are J.P. Morgan and Bank of America.
As a G-SIB, Citi is subjected to increased regulatory supervision by global bank regulators and central banks. Enhanced regulatory supervision was an important post-crisis reform to strengthen the global financial system by increasing bank capital ratios, transparency, and decreasing risk-taking. These reforms resulted in the largest G-SIBs moving away from risk-oriented banking activities such as advisory, high-yield lending, and trading, towards lower-risk activities. Indeed, Citi’s most valuable, high-growth segment, Treasury and Trade Solutions, is in lower-risk and entrenched activities such as liquidity and cash management, payments, trade solutions, and automated receivables processing. In our view, somewhat unintuitively, Citi’s increased regulatory supervision contributes to the company’s less risky banking business model, and thus its attractiveness as a downside-oriented investment opportunity.
Citi’s market perception suffers from the bank’s negative historical reputation. In 2008 during the Great Financial Crisis, Citi received the most TARP funding (the largest “bailout”) of the U.S. banks. TARP funding was provided by the U.S. government to forestall a liquidity problem that threatened to become a solvency problem. More recently, Citi mistakenly used its own capital to pay lenders when acting as Revlon’s loan agent, resulting in a $400M fine by the Federal Reserve and orders to resolve internal controls (which Citi fulfilled). Citi’s large global consumer bank was assembled by prior management in the early 2000s to attract and service high-end global consumers. Unfortunately, this pivot was costly and ill-timed in the context of increasingly complex multi-jurisdictional regulation to prevent money laundering and tax evasion. The global consumer bank has been a drag on Citi’s overall performance…” (Click here to see the full text)
