Higher Yields for Citigroup Stock?
Like its peers, Citigroup Inc (NYSE:C) has been under significant stress from the outset of 2016. The combination of low interest rates and weak energy prices anchored the profitability of C stock, which is probably what we’ll see in the earnings announcement.
Citigroup is releasing its quarterly results on Friday, April 15. Although analysts widely expect profits to come in far below the same quarter last year, there is a possibility that C stock could rise after its recent performance is priced in.
Bank of America Corporation saw its bottom line shrink by about 22% year-over-year, but BAC stock jumped 2.6% regardless. Do you want to know why? Simple: its performance exceeded analysts’ expectations.
Likewise, Citigroup could exceed expectations if the bar is low enough. I think the string of poor results from financials is doing a really good job of softening their landing ground, not to mention that market expectations are already low.
According to a FactSet survey, at the end of last year, the market thought Citigroup would deliver $1.50 per share for the quarter. Just a few months later, that estimate fell to $1.09. It was a sharper downgrade than we saw at many other financial institutions, indicating that Citigroup may have an uncommon level of exposure. (Source: “FactSet Earnings Insight,” FactSet web site, April 8, 2016.)
But there is evidence that Citigroup may be less vulnerable than its peers.
You see, Citigroup was one of eight financial companies required to submit a “living will” to the Federal Reserve. The living will was a plan to wind down the bank’s assets in the event of a potential bankruptcy. These plans are supposed to protect the broader economy from any one bank going bankrupt and dragging us into another recession. It was a key part of the Dodd-Frank Financial Reform Act.
Unfortunately, regulators rejected most of the living wills, directing those financial firms to go back to the drawing board. Bank of America Corporation, Wells Fargo & Co., and JPMorgan Chase & Co. all had their plans rejected. (Source: “Regulators Reject ‘Living Wills’ of Five Big U.S. Banks,” The Wall Street Journal, April 13, 2016.)
Citigroup did not. Both the Federal Reserve and the Federal Deposit Insurance Corp. green-lit Citigroup’s living will, giving the bank a rare seal of approval. Of the eight banks forced to submit the plans, Citigroup was the only one that had its plan authorized by both regulators.
So even though Citigroup is probably going to fall way short of the $1.53 earnings per share it delivered a year ago, the stock could see a bump if it tops analysts’ estimates.