Citigroup Inc. (NYSE: C)

Citigroup Inc. (C) is a financial services company, providing financial products and services to consumers, businesses and governments in approximately 140 countries. The Company’s financial services include consumer, corporate and investment banking, as well as securities brokerage and asset management.

Founded in 1812, the Company is headquartered in New York, New York.

Source: Reuters.com, SEC Filings.

Financial Summary

Source: Reuters.com

Analyst Consensus

The mean of 16 analysts polled by Thomson Reuters rate shares of C a “Hold.” The details of the analysts polled are as follows:

Analyst Recommendations and Revisions

Source: Reuters.com

Investment Highlights

Overview

The Company has rallied strongly following the market lows of March 2009–when the stock plummeted as low as 97 cents-to as high as $5 in August. Some analysts believe the recent rally in bank stocks is overdone, especially in the large money center banks still holding hundreds of billions of dollars in marked-to-model tier-three assets. The Fair Accounting Standard Board (FASB) allows banks to avoid writing these assets off at fair market value, distorting quarterly earnings and perceptions of the true financial health of the large money center banks, C included.

Other analysts believe that seriously impaired tier-three assets can be left on the Company’s balance sheet indefinitely until valuations eventually return to pre-Lehman levels, similar to the actions taken by the Bank of Japan following the collapse of real estate and Nikkei values during the 1990s.

Government TARP money and unprecedented levels of Federal Reserve (Fed) currency swaps (conducted with as many as 14 central banks) have provided a temporary backstop to the banking crisis while all but insuring the perception among many investors of adequate foreign central banks participation in the U.S. Treasury’s weekly auctions. The U.S. dollar’s weakness has resulted as a direct response to bank bailouts engineered by the Federal Reserve, while shareholders of the Company have directly benefited from Washington and Fed actions.

Current Sentiment of the Bank Sector and Citigroup

Many banks stocks now trade at price levels reflecting the most optimistic scenario painted of the U.S. economy. A meaningful rebound in the U.S. economy remains key to the outlook of banks. A change in investor sentiment could be disastrous to bank share prices, and could hinge upon third quarter top-line results of high-profile bellwether companies reporting during earnings season now underway.

The environment for bank stocks is unusual, not just in the scope of the damage to the industry but the government response to the developing crisis and the speculation the response has engendered. Stocks trading at levels not remotely tied to the underlying fundamentals are historically commonplace, and have been the theme of many recent bubbles starting with the popping of the tech bubble in 1999, the housing and credit bubble in 2007, and the bubble in progress-the U.S. Treasury market could affect the banking sector markedly.

Essentially, the assumption of many investors of further bailouts and liberal accounting standards gives hope to investors that the bank won’t be allowed to fail.

The Company’s stock has staged a huge rally since March 2009–sparked by technical buying of an oversold condition, bargain hunting among investors searching for value, and short-covering by traders. Today, sentiment in the Company and other bank stocks appears to hinge upon the overall strength (or weakness) of the U.S. economy. Some analyst point to ‘better-than-expected’ earnings reports in the retail, manufacturing, tech and conglomerates sectors as evidence of a looming bottom in U.S. GDP, while other analysts note that until earnings reflect increases in the top-line, no bottom in the economy is within sight. Traders of the Company’s stock are expected to be most sensitive to a resolution of this debate.

Recent Company News and Analysis

On October 9, the Company signed an agreement to sell Phibro LLC to Occidental Petroleum Corp. for approximately $250 million. Primarily, Phibro’s assets include cash, marketable securities and liquid commodities positions.

Phibro’s mean pre-tax earnings between 1997 and 2003 totaled approximately $200 million annually, while earnings between years 2004 and 2008 reached an average of $370 million per annum. Since 1997, Phibro’s reported profitable earnings in four out of five quarters.

The deal is expected to be completed by the end of 2009 and become part of Occidental Petroleum’s mainstream business of liquid natural gas production, power, pipeline and other businesses.

The sale of Phibro comes at a time of public outrage surrounding key executives qualifying for huge bonuses in the bank industry, which is also the recipient of unprecedented large publicly guaranteed funds. Analysts believe that Phibro was sold to solve a dilemma regarding the unit’s head, Andrew Hall, who is due $100 million in bonuses this year. A bonus of this size paid to an employee of bank (Citigroup) would reignite renewed outrage among the public. So, a spin-off of Phibro to Occidental, which includes bonus payout deferments over a number of years, was reached to obfuscate the issue.

The Phibro deal has markedly impaired the Company’s balance sheet, as the Phibro unit was one of the few assets generating large earnings– approximately $2 billion over the past five years. The forced deal instituted by Obama administration pay czar, Ken Feinberg, has materially hurt the Company as the expense for smoothing over a public relations problem.

Meredith Whitney Downgrades Sector Leader Goldman Sachs to ‘Neutral’

On October 13, Meredith Whitney of Meredith Whitney Advisory Group downgraded Goldman Sachs to ‘Neutral’ from ‘Buy,’ citing full valuation had been reached for Goldman. Shares of Goldman have surged 34% since Whitney recommended a ‘Buy’ on the stock.

Analysts believe Goldman’s leadership in the group serves as a bellwether for other bank stocks, with a sell-off or rally in Goldman Sachs taking the group along with it. Some analysts specifically believe that Whitney’s downgrade may be a warning regarding the entire sector without unduly disrupting the market as she has previously.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=c
C trades above its 13-day moving average. This bullish sign is significant because the moving average are also positively trending.

The MACD for C currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average of the MACD. The MACD is also above the critical level of 0, which implies the past price action had been positively trending. Overall, the chart is neutral in the short term, with the stock consolidating between $4 and $5.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity