Can Lloyds Banking Group PLC (ADR) (LYG) Outperform Citigroup? – Citigroup Inc. (C)

I’m going to use three key criteria — value, income, and growth — to compare companies to their sector peers. I’ve included some U.S. shares, as these provide U.K. investors with access to some of the world’s largest and most successful companies. Although there are some tax implications to holding U.S. shares in a U.K. dealing account, they are pretty straightforward and, I feel, are outweighed by the investing potential of the American market.

Today, I’m going to take a look at two banks that were hit hard by the financial crisis but now appear to be on the road to recovery: Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Citigroup Inc. (NYSE:C).

1. Value
The easiest way to lose money on shares is to pay too much for them — so which share looks better value, Lloyds Banking Group PLC (ADR) (NYSE:LYG), or Citigroup?

It’s almost too close to call, here, with both banks trading at around 0.8 times their book value and on similar forward P/E ratios. However, Lloyds posted a statutory loss of 1.3 billion pounds for 2012, whereas Citigroup Inc. (NYSE:C) managed to deliver a $7.9bn profit, and has been profitable since 2010. For me, Citigroup’s proven profitability and its lower forward P/E ratio give it a slight edge over Lloyds in terms of value.

2. Income
With low interest rates set to continue for the foreseeable future, dividends have become one of the most popular ways of generating an investment income. Yet banks have become one of the worst places to look for yield, so do Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Citigroup have anything to offer income investors?

Once again, Citigroup Inc. (NYSE:C) appears to be further down the road of recovery than Lloyds. Although its $0.01-per-quarter dividend is pretty nominal, it passed a recent Federal Reserve stress test with flying colors and could have requested a dividend increase while remaining within Federal guidelines.

Citigroup’s CEO Michael Corbat has chosen not to pursue this route and to spend another year improving the bank’s capital position, but he had the choice — unlike Lloyds Banking Group PLC (ADR) (NYSE:LYG)’ board, which did not recommend a dividend in 2012, due to “regulatory uncertainty and the statutory loss in the year.” Consensus forecasts suggest that Lloyds might declare a small dividend in 2013, but in reality, this is just a mixture of guesswork and hope, as until Lloyds becomes sustainably profitable, it is unlikely to declare a dividend.