July 14, 2022 - 11:54am EST by
2022 2023
Price: 43.55 EPS 6.68 7.03
Shares Out. (in M): 1,942 P/E 6.5 6.2
Market Cap (in $M): 84,574 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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  • Banks


I am in no way an expert on banks so I’d be grateful for thoughts on the framework as well as the idea.


Citigroup is a fairly standard bulge bracket bank which means that, in large part, it’s a black box.  Given that, I think it’s helpful to ask “how bad might things get?”.

Citi today has $644bln of net loans on its balance sheet and another $89bln of receivables from broker dealers.  So, call it $640-730bln of loans today.

In Q3 2007 (just before the banks acknowledged that things were going to shit), Citi had $761bln of net loans and $69bln of receivables from brokerages from ~$760-830bln of loans.


Then, the financial crisis happened and Citi, who had been taking around $8bln of provisions a year, took $80-85bln of excess provisions in the 4 fiscal years that followed.  Notably, Citi’s business was generating some $15-20bln of operating income so these higher-than-normal provisions led to a cumulative GAAP loss of ~$14bln over 4 years with losses in the first two years reaching $40bln (and the absolute largest cumulative loss over the period being about $49bln).

Coming back to today, the Fed stress test estimate for 2022 estimated loan loss rates of 6.4% under the severely adverse scenario.  GFC loan losses were 6.8%.  The stress test analysis estimates that Citi’s CET1 ratio would bottom out at 8.6% (more or less in the middle of its peer group: BofA 7.6%; JPMorgan 9.8%; Goldman 8.4%; Morgan Stanley 11.4%).  The Fed also estimates that Citi would have just $27bln of Net Income losses through Q1 ‘24 under the severely adverse scenario putting it right at the median for banks as a % of assets.




Stepping outside the fed framework, on the basis of TCE/Loans, Citi is in a much stronger position today than in Q3 2007:


Going back to Citi today, the company has $154bln of Tangible Common Equity and 1,942m shares outstanding putting the stock, at $44, at about 55% of TCE.

Over the last 10 years, the company has traded at an average of .88x TBVPS.  This includes periods of substantial market stress - memories of the GFC were still fresh in 2012, late 2015 there was a mini panic, obviously the market was dislocated in 2020, and the stock is basically at its 10-year P/TBVPS low in recent months which, I think, is where the opportunity lies.  That is to say the stock routinely traded above TBVPS when the market wasn’t in the dumps.



Over this period, ROTCE averaged 7% (or more like 8% excluding 2018 when the company had a large tax charge):