Financials Weekly Notes: Citigroup, Goldman and RBS

-11.44%
Downside
62.75
Market
55.57
Trefis
C: Citigroup logo
C
Citigroup

It was a mixed week for the equity market, with investor sentiment taking a hit on Monday, December 1, due to weak economic indicators from China and Europe. The fact that Black Friday sales figures were lower than expected also did not help, and the S&P 500 as well as the Dow Jones Industrial Average (DJIA) saw their largest single day decline in several weeks. But strong U.S. construction spending figures released by the Commerce Department and a better-than-expected auto sales report from several large automakers on Tuesday resulted in both indexes posting a gain for that day. The momentum continued on Wednesday, when the Federal Reserve’s Beige Book indicated an optimistic outlook for the country’s economy. [1] The S&P 500 and the Dow rose to new record highs for the day, before inching slightly lower on Thursday.

Bank shares reported gains that were in line with the larger equity market, with the KBW Bank Index increasing marginally over the week through Thursday.

Citigroup

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Citigroup (NYSE:C) is reportedly shuttering its LavaFlow electronics communication network (ECN) and reallocating resources employed by the alternative trading system within its equities division. [2] Clients can see details of existing orders in the LavaFlow system, unlike “dark pool” trading venues where no information is available until the order is executed. The ECN was fined $5 million by the SEC this July for failure to protect customer data, and has remained under strict scrutiny over recent months as regulators probe alternative trading systems operated by banking giants – particularly dark pools. Notably, Citigroup continues to operate at least two dark pools.

  • Trefis has a $58 price estimate for Citigroup’s shares, translating into a $176 billion market cap. This is about 10% ahead of the market price between $53-55 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $78.5 billion for an earnings per share of $3.59, compared to a consensus of $3.48 according to Reuters

See our full analysis for Citigroup

Goldman Sachs

Goldman Sachs (NYSE:GS) has partnered with private equity group CarVal to acquire a portfolio of troubled Irish mortgages worth £1.6 billion ($2.5 billion) from the Lloyd’s Banking Group. [3] The portfolio includes both residential and commercial mortgages, and reportedly traded hands at a purchase price of slightly less than half the face value of underlying assets.

  • Trefis has a $188 price estimate for Goldman’s shares, translating into an $85 billion market cap. This is roughly around the market price of between $186-192 seen over the week.
  • We estimate the company’s FY 2014 revenues to be $35 billion for an earnings per share of $17.24, compared to a consensus of $16.70 according to Reuters.

See our full analysis for Goldman Sachs

RBS

The Royal Bank of Scotland Group (NYSE:RBS) is winding down its Global Restructuring Group (GRG) business by exiting all operations in Europe outside the U.K. [4] The move to exit the debt restructuring business is yet another step by the banking group, which is majority owned by the British government, to get rid of its non-core operations. The unit was under considerable fire last year after it was accused of forcing small and medium enterprise (SME) customers out of business in order to profit from the proceedings, so the exit was not a surprise despite the fact that RBS was cleared in April (see Cleared Of Fraud Against SMEs, RBS Eases Rules For Distressed Businesses).

  • Trefis has a $13 price estimate for RBS’s shares, translating into a $41 billion market cap. This is roughly 10% ahead of the market price of around $12 seen over the week.
  • We estimate the company’s FY 2014 revenues to be around $32.1 billion for an earnings per share of $0.53, compared to a consensus of $0.64 according to Reuters

See our full analysis for RBS

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Notes:
  1. Beige Book, Federal Reserve Website, December 3 2014 []
  2. Citigroup to shutter LavaFlow stock trading venue, Reuters, Dec 2 2014 []
  3. Lloyds sells Irish mortgage portfolio to Goldman Sachs and CarVal, Financial Times, Dec 2 2014 []
  4. RBS Said to Start Shutting Restructuring Businesses in Europe, Bloomberg, Dec 1 2014 []