Will Citigroup Return to Its Former Glory?

Binu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Citigroup (NYSE: C) is a company which provides a large gamut of financial services that includes retail banking, investment banking, asset management, and corporate banking to consumers, corporations, governments, and institutions worldwide. The departure of Vikram Pandit as CEO of Citigroup has become a positive catalyst for the company. It seems that the former manager was not so efficient. Hence, the company was quite unstable with no growth in shareholders' value. Former Citigroup director and current chairman Michael E. O’Neill has reshaped the New York Company, by focusing on cost cutting.

Executive pay plan

Citigroup has now introduced a compensation structure that aligns with performance and is more competitive. In 2012, Citigroup earned a profit of $7.54 billion. If the annual net income divided by total assets (i.e. return on assets) falls below 0.6%, executives won’t be eligible for any kind of stock units. The executives are only capable of having 150% of its allocation, if the returns of the company are higher. For 2012, there was no cash bonus offered to JP Morgan Chase & Co.’s (NYSE: JPM) Jamie Dimon, as well as to Bank of America’s (NYSE: BAC) Brian T. Moynihan. While, Lloyd C. Blankfein of Goldman Sachs Group was awarded with $5.7 million cash bonus. In 2011, Vikram Pandit was paid $15 million.

Stock performance

The CEO has planned to fire 11,000 workers to help increase the return for shareholders and to cut costs. In 2012, Citigroup shares returned 50% compared to JPMorgan’s i.e. 32%.

Blankfein at Goldman Sachs was awarded with $21 million package, while Charlotte based Bank of America awarded Moynihan $12 million.

Citigroup has been working on soured loans, whittling costs, and unwinding unprofitable business lines which are key prospects for the revenue increase in future. I am highly bullish in this particular stock in long –term which is truly valuable.

Competitor analysis

JPMorgan Chase, Bank of America, HSBC Holdings (NYSE: HBC) are Citi’s main competitors. Bank of America reported a 77% drop in fourth-quarter earnings as it was clearing old problems from its mortgage unit. Bank of America has been reporting quarterly losses that are linked to acquisitions. Citigroup reported earnings of $1.2 billion in the final few months of the year.

For 2012, JP Morgan reported a record net income of $21.3 billion. The bank's net income rose from $3.7 to $5.7 billion. JP Morgan CEO Jamie Dimon mentioned the company's results were hampered by poor performance across all its business units.

HSBC is in a neck to neck competition with Citigroup. HSBC is stated to be in an agreement with U.S. Authorities related to anti-money laundering laws. The company plans to work on the improvement of its compliance policies and procedures. It is facing individual challenges, but looking forward to be well positioned and move ahead.

Better than expected

I am highly convinced that Citigroup will endure. Citigroup is generating impressive earnings with great prospects for the future. It is trying to build on the rich legacy of innovation. It is focusing on international businesses that have been consistent outperformers. Mr. O’Neill and his CEO Michael Corbatt are working hard to guide the Citi and return it to its lost glory. It has a long way to go before it can attain the heights where it was, before 2007, but it seems that it surely will.


binubuvaria has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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