2. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 79
Share Price as of November 28: $45.75
Citigroup Inc. (NYSE:C), commonly known as Citi, is an American multinational investment bank and financial services corporation. It is incorporated in Delaware and has its headquarters in New York City.
On November 2, Bloomberg disclosed that Citigroup Inc. (NYSE:C) and The Goldman Sachs Group were selected to spearhead the initial public offering (IPO) of Ibotta, a digital marketing software firm. The anticipated valuation for the listing is $2 billion, and it is projected to take place in the coming year.
By the end of this year’s third quarter, 79 out of the 910 hedge funds surveyed by Insider Monkey had bought and owned Citigroup Inc. (NYSE:C)’s shares. The banks’ biggest investor out of these is Warren Buffett’s Berkshire Hathaway courtesy of its $2.2 billion stake.
Silver Beech Capital mentioned Citigroup Inc. (NYSE:C) in its third quarter 2023 investor letter. Here is what it 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.
We believe the market dislikes Citi for these historical reasons and because Citi earns lower returns on equity (“ROE”) than its peers. In 2023, Citi has so far earned an ROE of ~7%, compared with peers that earn 10%+ ROEs. Recognizing that Citi is less valuable than its peers because it is a lower performance bank, we would argue that Citi’s valuation is still far too low. We believe the market is over-discounting Citi at its current valuation of ~0.48x tangible book value (“TBV”)…” (Click here to see the full text)
