Company Information

Citigroup is an international investment and consumer bank, with hundreds of millions of customers banking with it, with hundreds of millions more using Citibank branded credit cards. The bank pays close attention to risk management, fiscal propriety, and consumer satisfaction.

Executive Summary

Thesis: Citi bank has a diverse set of core strengths that position it well for the coming uncertain economic future. While the bank does hold a lot of credit card debt, which exposes it to a disproportionate amount of risk, the bank has made concrete moves towards reducing that imbalance. The bank’s diversified revenue streams, borne especially by an industry-wide large growth in investment banking and massively increased trading volumes providing much-needed cash. The bank holds extremely well situated investments in credit cards, which are certain to increase revenues as that segment continues to grow. The future increase in interest rates will also drive more revenue to the bank, especially in the immediate recovery from the current financial crisis. In addition, as Citi bank does not hold a large number of consumer and commercial loans, the bank is well insulated from the threat of rising default rates as the extent of the financial damage from the pandemic becomes more apparent.

We expect that Citi will have a prolonged recovery with the rest of the banking industry, but will remain ahead of the recovery curve due to its innate advantages in diversified revenue streams. A huge number of owned and co-branded credit cards, a major focus towards risk management, and insulation from perilous investments make Citigroup an attractive, and affordable, investment.

Investment Merits: Strong cash flow performance even during the pandemic, increased consolidation leading to mergers, and the increasing number of people using credit cards all point to high future returns on investment.

Investment Risks: Large amounts of credit card debt, unfeasible investments,  and a relatively small investment in consumer finance loans could lead to a missed opportunity for profit.

Recommendation: Buy at current price, and hold for a year.