In Africa, JPMorgan seems to know exactly what to target, bonds and multi-billion dollar oil and government contracts. Even though Citigroup saw a 31% YOY growth, the institution is not a definite green light for an investor. Nevertheless, Citigroup Inc (NYSE:C) had an outstanding score (the best in the banking industry) in the Federal Reserve’s annual stress test, which saw it deliver an 8.3% Tier 1 common capital ratio. The test is an indicator of how financial institutions could endure severe economic crisis. Citigroup Inc (NYSE:C) had its costs rising steadily due to its expansion program, and the CEO announced plans to cut 11,000 jobs and disengage from certain markets to counter this. I generally think Citigroup would be a volatile stock, also considering last year’s stress test outcome.
HSBC may not be such a proper investment, either. From Citigroup’s case, we have seen how rapid expansion can impact heavily on a company’s financial stand, especially when not conducted strategically. Furthermore, aside from the 2008 crisis, the London Whale incident suffices to evidence that the seemingly infallible mathematical geniuses who investors implicitly trust may not be as reliable as they thought. HSBC also faces PR problems in a money-laundering scandal case that resulted in the entity paying $1.9 billion in fines to the U.S. authorities. We also cannot play blind to the company’s European roots, considering how volatile and unpredictable Europe’s economic future will be.
Conclusion
JPMorgan is definitely a good buy. From the falters of Citigroup Inc (NYSE:C)’s expansion plans, JPMorgan Chase & Co. (NYSE:JPM) strategically did risk valuations and decided to dip into the emerging markets for the “cream of the crop” deals. Weirdly, between the two, I find the need to explain my optimism on Citi more. Citigroup Inc (NYSE:C) is getting out of the woods. It’s amazing how Citi has the largest ground retail network of any financial institution in Latin America. If you cite Brazil and Mexico as test statistics, business in Latin America can only go up. Last year, Citi’s revenue from Latin America hit $9.7 billion. Also, with regard to micro-finance services, Citi has an extensive base in Latin America, Asia, and Africa. The relatively under-developed love MFIs. It’s an inexplicable obsession, even here in Kenya. In Africa, for example, as of 2011, there were roughly 300 registered MFIs. Furthermore, Citi is increasingly winding down Citi Holdings as it continues building momentum in its core businesses and sheds the broken project. Citigroup Inc (NYSE:C) reduced the size of Citi Holdings by 31% in 2012 alone. Citigroup should eventually clean up its house and offer good investment avenues, but even in a parallel universe, I would be skeptical of HSBC Holdings plc (ADR) (NYSE:HBC). Like all banks, it is working overnight to pull itself out of predicaments of the last five years. It may take time, so you may want to wait a bit and see how the graph plays out.
The article JPMorgan, Citigroup In Africa: How It Affects You originally appeared on Fool.com and is written by Frank Midega.
Frank Midega has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM). Frank is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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