As an Investor Citigroup would not Interest Me
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As I watch Citigroup (NYSE: C), I take a look at this company and watch it as it continues to fall from grace in the eyes of investors. With much better companies in the banking sector to invest in the long term, I do not believe Citigroup would be one of my choices right now. That does not mean the bank will not be a good long term investment in the future just right now perceptions will continue to make this stock tumble
Perception of a company is as important to an investor as numbers are. And to some investors, perception is the first thing they notice, and if it is bad, they may not even get to the numbers. Well the press on Citigroup continues to bring investor relations nightmares to the dinner table. Now, understand, this is perception.
The latest is the pay package of CEO Vikram S. Pandit. It is not new news that stockholders were not happy regarding a board-of-directors recommended $15 million compensation package for Mr. Pandit. They voted against to the tune of (55%) are not in favor of the enormous payment. This sets a precedent—stockholders actively rejecting a compensation scheme. The camp of disgruntled voices broadens as the company's employees also expressing deep dissatisfaction. If stockholders and employees band together it's safe to assume that Citigroup's reputation and standing is far from stable. Are investors going to pour their money into a company with news like this coming out?
The powers that be may need to change thier tack if they wishes to keep the company's stockholders on board. If you add in their particular dissatisfaction with the company as a whole, you may have a large group of angry voices. This won't bode well for Citigroup moving forward. On top of this, one particularly dissatisfied shareholder accused the company (in a lawsuit) of mismanagement related to the oversized paycheck for Pandit. How is this justified based on the bank's performance as profits dropped 2% from the previous year
Not only will this keep investors away, but those who look past the news will also see a bottom dweller among banks. Look at two key statistics among some of the major banks. Morgan Stanley (NYSE: MS) shares now trade at just 6.5 times estimated 2013 compared to Citigroup's 6.68 and Bank of America's (NYSE: BA) 7.33. These are three companies on the bottom of the financial rung. The leader in this industry is Wells Fargo (NYSE: WFC) with a respectful 8.98. If we look at book value, we also see the same three companies on the bottom. Morgan Stanley is just 63% of tangible book value versus 62% for both Bank of America and Citigroup. Wells Fargo, meanwhile, trades at 1.78 time’s tangible book value.
So as an investor, I look at Citigroup and I see them broiled in controversy over pay that I might consider too excessive. I already know it did not pass the Fed’s test. And as I look at its numbers, I see much better prospects at this time like Wells Fargo and US Bankcorp to put my money in. So even though Citigroup my be a good long term investment in the future, right now, I do not think investors would chose it as the company of choice if they are looking at banks. It still has a way to fall because there is nothing coming up that will turn the stock around.
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