Citigroup cuts consumer banking

Citigroup will reveal its fourth-quarter results on Thursday 15 January, when traders will be keeping eye on its capital control. 

Citibank of Citigroup
Source: Bloomberg

Citigroup is firing on all cylinders and the bank is poised to finish the financial year on a high note, after revenue from fixed-income and equity trading revenue rose by 5% and 14% respectively in the third-quarter. Given that volatility in the financial markets increased since the last set of results were announced, the final quarter results are tipped to be impressive. The credit card and commercial lending business posted single-digit increases in revenue, but Citigroup has since announced plans to trim the retail side of its operation.

Citigroup, the third-largest bank in the US, is to close down its retail banking divisions in 11 countries. The winding down of the consumer banking operations has been in the pipeline for a while, but has not been done sooner as the company did not have standardised accounting practices. This is part of a wider plan to reduce the size of the bank in the wake of the credit crisis; trimming its balance sheet will help free up capital.

In March 2014 Citigroup failed the Federal Reserve stress test, which prevented the bank from increasing its dividend and embarking on a share buyback scheme. The bank also failed to meet capital requirements in 2012. A strong capital structure and adherence to regulatory requirements is essential in gaining investor confidence. Banks submitted their capital plans at the beginning of this year for 2015, and is set to hear feedback later this year,

On 15 January dealers are expecting Citigroup to announce revenue of $18.61 billion and EPS of $1.06. Results in Q3 exceeded estimates, with revenue at $19.97 billion and EPS $1.15 when the consensus was for revenue of $19.08 billion and EPS of $1.11.

The bank also reports full-year figures on Thursday 15 January, where traders are anticipating revenue of $77.77 billion and EPS of $4.59. These forecasts represent a 1.3% increase in revenue and a 5.7% rise in EPS.

Equity analysts are bullish on Citigroup, and, out of the 35 recommendations 21 are buys, 12 are holds and two are sells. The average target price is $61.04, which is 20% above the current price. Investment banks are less bullish on Morgan Stanley, and out of the 36 ratings 15 are buys, 18 are holds and three are sells.

The number of short positions on Citigroup has increased by 3.1% since the third-quarter results were announced.

The stock has been in an uptrend since April, and is hovering above the 200-day moving average which is at $50.35. If it closes above this mark it could target $56, and if it closes below it may revisit $48.

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