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All Is Not Well for Citigroup Inc. (C)

US Bancorp’s CFO was reported saying that investors should expect higher originations during the current quarter despite higher mortgage rates. He explained that the lag between the time a mortgage application is received and the time the mortgage is closed will lead the bank to report higher originations and the resultant higher mortgage banking revenues. Analysts at Citigroup expect the bank to report a moderate 1.5% growth in its mortgage banking revenues, while US Bancorp is expected to benefit from its relatively large payments business which might surge up to 7% over the prior quarter.

JPMorgan’s CEO told investors should expect additional $5 billion in revenues if the 10-year Treasury yields climb 300 basis points, while this figure would still be a positive $2 billion if the yield increased 100 basis points. With regard to the company’s capital position, however, JPMorgan’s shareholder distributions could be threatened by a hike in the simple leverage ratio required by banks. The stock currently yields 2.8% on its quarterly dividend of $0.38 per common share. If regulators decide to double the simple leverage ratio requirement to 6%, you should expect the bank to suspend its dividends for up to 5 years in an attempt to hold on to more capital.

A way out for Citi

I believe the best way out for Citigroup Inc. (NYSE:C) is to concentrate on business that are making it money and divest from businesses that are losing money. In an attempt to cut costs, the bank’s management has decided to exit from as many as 21 emerging markets where the costs overshadowed benefits. These countries produce less than 10% of the bank’s revenues while offering a return on asset of only 0.4%.


While the third largest bank by assets received new management, the woes for Citigroup Inc. (NYSE:C) did not end yet. The bank’s competitive edge has turned against it, causing it to report as much as $1.5 billion in losses from foreign currency translation risk. Additionally, the design, structure and duration of the bank’s available for sales securities will lead the bank to report a book value decline of 0.8%. In my opinion, the best way out for the bank is to reduce its costs and focus on businesses that are efficient.

The article All Is Not Well for Citigroup originally appeared on and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM). Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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