VALUATION HIGHLIGHTS

1. Institutional Clients Group (Advisory & Underwriting, Sales & Trading, Treasury & Trade Solutions) constitutes 62% of the Trefis price estimate for Citigroup's stock.
2. Personal Banking constitutes 36% of the Trefis price estimate for Citigroup's stock.

WHAT HAS CHANGED?

Latest Earning

In Q4 2023, Citigroup reported Total Revenues of $17.4 billion, down 3% y-o-y. It was primarily driven by a 19% drop in revenues for the Sales & Trading unit and a 17% decrease in revenues for the All Other segment, partially offset by growth in personal banking and investment banking divisions.

The company posted total revenues of $71.9 billion in 2021, which was 5% below the year-ago period. The revenues mainly suffered due to lower consumer banking revenues, which were down due to the low interest rate environment. The net interest income improved in 2022 due to interest rate hikes and loan growth, leading to a total revenue of $75.3 billion. Further, the same trend continued in 2023 (revenue $78.5 billion)

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Citigroup's value that present opportunities for upside or downside to the current Trefis price estimate for the banking group:

Sales & Trading

• Debt Capital Deployed: Citigroup's debt trading desk saw its asset base swell from $288 billion at the end of 2006 to $414 billion in 2007. Following the global economic crisis, this figure fell steadily to below $176 billion by 2016 before trending upwards over 2017-18. The figure gradually grew close to $260 billion in 2022.
• Investment Banking EBT Margin: Citigroup's investment banking business has reported margins of around 40% over 2013-2015, with the figure improving to over 45% in 2017 due to the bank's cost-cutting efforts. The figure fell slightly to 42.8% in 2018 before increasing to 46.2% in 2021. It was around 30% in 2023. We expect the figure to remain largely constant going forward. However, if these margins increase to 35% over our forecast period, there would be an upside of over 7% to the current price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Citigroup at the top of the company page.

BUSINESS SUMMARY

Citigroup is a leading global financial services holding company with operations in over 160 countries. The company offers consumer banking, credit cards, corporate and investment banking, securities brokerage, and wealth management services worldwide to corporate, institutional, government, and individual customers.

SOURCES OF VALUE

Below are some key sources of value for Citigroup:

Sales & Trading

Citigroup generated nearly $22 billion in revenues from its sales & trading business in 2022. In comparison, the consumer banking business generated $24 billion for the same period. At the same time, Citigroup has achieved a higher operating margin of 34% for its investment banking business compared to about 20% for its consumer banking business. As a result of this, the bank's Sales & Trading division is the primary source of value, according to our estimates.

Consumer Banking Yields Greater than Treasury & Trade Solutions

Citigroup has decided to focus on its core consumer banking business after suffering severe losses during the subprime crisis. This move also came about due to pressure from the U.S. government, which had to bail out the company. The consumer banking business earned a net interest margin of 7% in 2022 on a loan base of around $321 billion. In comparison, the company had treasury client assets worth around $675 billion in its Treasury & Trade Solutions business in 2022, on which it earned roughly 1.8% in fees. As the company focuses more on the consumer banking business, we expect solid asset growth even as the yield figure remains significantly higher.

KEY TRENDS

Regulatory reforms expected to pressurize revenue growth going forward

Increased regulation of the financial industry is expected to reduce the top line for most financial institutions. In the past, decreased regulation led to greater risk-taking for many parts of the businesses, which drove earnings growth. Stricter regulation has affected the banking industry in several ways:

• Banks are now required to hold additional amounts of capital, which can potentially slow growth
• The CARD Act passed by Congress has clipped card income by prohibiting issuers from raising rates, fees, or finance charges on existing balances or prospective accounts in the first year
• The Volcker rule has forced banks to scale back trading operations
• Securitization has become less appealing, as investors and regulators demand that banks retain some risk as well

Dominant position in investment banking

Citigroup holds a strong position in the global investment banking space - and has been able to grab a larger share of the emerging market share compared to its peers due to its geographically diversified business model.

Consolidation expected to continue

As a result of the financial crisis, the banking industry saw a period of mergers and consolidation. The financial crisis has seen nearly 15-20% of the market share change hands. The banking industry continues to see consolidation in almost every aspect of the business as players try and globalize and seek scale. Due to uncertainty, customers are also increasingly becoming more risk-averse and turning to larger players with stronger deposit bases.