Where Does Citigroup Stand among the Major Banks?
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Recent news has not been optimistic for major banks like Citigroup (NYSE: C). There are some causes for optimism, but most of the current news suggests Citigroup is a weak stock that will be on the decline in the near future.
Big banks currently face risks of losses as a result of events going on in Greece, and this has led analyst David Trone to downgrade his rating of JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), and Citigroup. Greece is resisting many of the policies of the European Central Bank. As a result of this growing dissatisfaction, it is becoming a strong possibility that Greece will leave the European Union, which will lead to negative financial consequences throughout Europe.
These global banks, therefore, must also bear the consequences as this financial situation plays out. Banks are also commenting on the difficulty they will face as a result of this event. Anshu Jain, head of Deutsche Bank AG (NYSE: DB), has discussed the situation in an interview. While some have exaggerated the negative impact this will have, Jain acknowledges that Greece’s potential exit is certainly cause for concern and would not benefit anyone.
According to Jain, the financial situation in Europe is generally positive aside from the events in Greece. This appears to be a slight attempt to put a positive spin on things though, as even Jain recognizes that everything depends on how things progress with Greece. This is certainly an event for stockholders to keep a close eye on, as it may lead to great difficulty in Europe, which would have negative impacts on global banks.
Unfortunately, the political crisis in Europe is only one problem Citigroup must deal with, as it is also responding to a variety of legal troubles.
The Financial Industry Regulatory Authority has fined Citigroup $3.5 million for providing inaccurate information related to its residential mortgage-backed securitizations and its mortgage performance data. Not only is this bad news in a strictly financial sense, but it gives a negative image of Citigroup as being untrustworthy. This allegedly inaccurate and misrepresented information is having other negative effects as well. For example, Woori Bank is also suing Citigroup for covering up information about mortgages and residential mortgage-backed securities.
Citigroup is not the only bank facing these struggles. The Federal Deposit Insurance Corp. is suing several major banks for providing misleading information about these securities. It is filing this suit against Citigroup, JPMorgan, Bank of America, and Deutsche Bank. Like with the crisis in Europe, therefore, a variety of major banks are also facing the same dilemma in terms of legal problems.
This is not good for stockholders of these companies, but it does remove the minor problem with public image. If several banks are facing these same issues, it is less likely for people to direct a negative image at any specific bank. Regardless, these legal troubles are coming up at a bad time for major banks, as they already face difficulty with the situation in Europe. Stockholders have good reason to be concerned, and they should keep close watch on these two situations.
In comparison to other banks, the lawsuits facing Citigroup may not be as severe as they appear. Goldman Sachs (GS), Morgan Stanley (MS), Credit Suisse Group (CS), Royal Bank of Scotland (RBS), JPMorgan, and Bank of America face a major lawsuit in New York. A group of plaintiffs are suing these banks for $1.8 billion for misrepresentations related again to mortgage-backed securities.
Despite the fact that Citigroup is not involved in this case, it is amongst the many major banks being sued over misrepresentations of these securities. It is possible that the situation is not quite as bad for Citigroup as it is for other banks. Regardless, this is still bad news, as Citigroup’s stock will still struggle with the mass of lawsuits facing it.
Citigroup has recently received good news, however, as the court has dismissed a recent lawsuit against it. A New York real estate developer attempted to sue Citigroup for a failure to disclose its risks in 2008, but the court did not believe he could prove that Citigroup misled him or that his losses were a result of the risks Citigroup failed to disclose.
This is a small victory for the bank, and it does show that lawsuits related to misleading information have the possibility for dismissal. This was a smaller case, however, than the ones it faces related to residential mortgage-backed securities. The good news, therefore, is minor in comparison to the other difficulties facing the company, and the outlook for Citigroup stock is not much better as a result of it.
In response to financial losses of JPMorgan, stockholders are also questioning hedging practices of banks. Banks such as Wells Fargo (WFC), Bank of America, and Citigroup have defended themselves and demonstrated that they do not participate in as risky of practices as JPMorgan. As a result of the defense made by these banks, the criticisms of JPMorgan will not transfer over to other banks. This will likely have little impact on Citigroup stock, but this does show the bank rising slightly above its competition.
Citigroup is further standing out by becoming the main sponsor of Colombia InsideOut, which is an event that will promote growth in Colombia’s financial market. Several CEOs have commented on the importance of Colombia’s economy in the region, so this is no small event. Citigroup’s involvement in this promotion may help provide growth in a region, therefore, that will help banks deal with the declining situation in Europe.
Regardless, the events in Greece and the lawsuits over mortgage-backed securities do not suggest promising results for major banks like Citigroup. By comparison, Citigroup may be a slightly better stock than other major banks, and the growth possible in Colombia suggests some optimism. This is only a small sign for hope though. Recent news shows this to be a bad time to invest in most of the major banks, as there is a strong possibility that stock prices will be on the decline as events continue to develop.
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