Citigroup Inc (NYSE: C) has gotten past the financial crisis and now with the U.S. Treasury announcing plans to divest itself from the New York-based bank. Citigroup is in the process of regrouping and has ridden itself of most of the non-core assets that it hopes to shed in its Citi Holdings Division. The company has also focused on expanding its core operations and company CEO Vikram S. Pandit is rebuilding the company’s board of directors in a move to move beyond a buyout strategy for growth.
Citigroup still has substantial changes to make and will likely see earnings that aren’t worth writing home about for 2010 and 2011, but the company has made good progress in divesting itself of what it considers non-core businesses by spinning off Primerica and divesting itself from Smith Barney.
The company’s “Citi Holdings” unit, a group of non-core businesses marked as “for sale” by the company, still contains about 30% of Citigroup’s total assets, but will be much less of a drag on the company as it sells off the remaining businesses in the unit. Citi Holdings currently consists of residential and commercial real estate loans in North America and other consumer debt which became illiquid as part of the financial crisis, as well as a joint venture investment by combining Smith Barney with Morgan Stanley’s brokerage unit.
Citicorp, the division of the company that contains its core businesses, has set on building out its global presence. Citi recently announced plans to allow for mobile phone transactions in India and has set its eyes on expanding its consumer operations in a number of developing countries, including Singapore, Hong Kong and South Korea.
At the end of 2010, Citigroup should end with about $1.7 trillion worth of assets. Shareholder equity should sit at the end of the year at about $150 billion, or about $5.00 per share in terms of book value. The stock will likely take a couple of years for its return on equity to return to historic levels, which could be 10-15% judging by historical measures.
Citigroup reached a 20% return on equity in 2000, which would the company will not likely repeat, buy a 12% return on equity would result in $0.60 earnings per share and a forward PE multiple of 8. The company may take until 2012 or 2013 for returns to improve significantly, but it’s not a long shot to consider Citigroup’s share price to be between $10 and $15 by that time.
There’s still some amount of risk to any potential upside in Citigroup, especially if it cannot wind down the rest of its Citi Holdings Assets.
