Barclays Trims Citigroup Inc Estimate, Still Bullish

Barclays Trims Citigroup Inc Estimate, Still Bullish

Most analysts think that the US banking sector is going to report that it had a rough first quarter this year, and while Barclays sees the same trends, it still expects Citigroup Inc (NYSE:C) to beat the consensus next week. Barclays PLC (ADR) (NYSE:BCS) analyst Jason M. Goldberg has reduced his EPS estimate from $1.22 to $1.20, after a previous reduction from $1.30, against a consensus $1.16. He gives Citi an Overweight rating with a $60 price target (currently $46.6), in line with other analysts’ ratings.

Barclays Citigroup Estimates

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Citigroup has guided for lower consumer, markets revenues

“Recently, C has moved toward a more customer-driven model and run down its legacy problem assets which should ultimately reduce its risk and free up capital,” Goldberg writes in an April 9 report. “Its emerging markets presence offers another growth avenue that should help mitigate the impact of U.S. fin reg/sluggish loan growth.”

Even if Citigroup Inc (NYSE:C) is in a good position to provide long-term growth, it has some hurdles to cross in the short term. Citigroup Inc (NYSE:C) has already provided guidance during the quarter that investors should expect lower consumer revenues because of seasonally lower credit card activity and fewer days in the quarter; a 17% – 19% year-on-year drop in revenues from equities and fixed income, commodities, and currencies (FICC); and increased expenses as legal and repositioning costs remain stable while compensation goes up.

Waiting for information on the CCAR and Banamex

Goldberg thinks there is a possibility for a positive surprise from markets revenues or a negative surprise from expenses, but he is especially interested in getting more information from Citigroup Inc (NYSE:C) on how it will deal with the Fed’s rejection of its 2014 Comprehensive Capital Analysis and Review (CCAR) and the ongoing Banamex case.

If the CCAR rejection was due to several small issues, each of which can be fixed relatively easily, then Citigroup Inc (NYSE:C) should be able to get its capital plan back on track without too much disruption. If the problems are more serious then it would mean not just a delay, but higher costs and possibly a much smaller buyback than expected.

Citigroup Inc (NYSE:C) has already taken a $400 million hit because of the fraud discovered at its Mexican subsidiary Banamex last month, but there are also several government agencies investigating the matter. Investors will be looking for more information on how the fraud happened (money laundering safeguards probably should have caught it), whether damages can be recovered, and evidence that it really was an isolated incident.

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