Citigroup sees return to sustained profitability

Citigroup sees return to sustained profitability

New York: Citigroup Inc chief executive Vikram Pandit told investors on Thursday the bank is on track to return to sustained profitability and losses from some of its worst assets should be manageable if the economy does not deteriorate.

The comments were uncharacteristically optimistic for Pandit. The bank’s improving performance is easing pressure on the CEO, who has been criticized for being slow to recognize the seriousness of the financial crisis.

Citigroup shares rose 5.6% on Pandit’s comments, bringing their gains since the end of last week to 19%.

“Citi today is a fundamentally different company than it was two years ago," Pandit said at the presentation, distancing himself from the bank’s prior missteps.

Citigroup has posted more than $100 billion of writedowns and credit losses since late 2007. The bank’s shares have lost 90% of their value since late 2006 and Citigroup required three different government rescues in 2008 and 2009.

But investors are increasingly hopeful the tide has turned for Citigroup. It is one of the best capitalized major bank in the US by many measures and has one of the lowest valuations. A number of high profile portfolio managers — including George Soros, John Paulson, Edward Lampert — have been accumulating shares recently.

“Pandit is looking better and better," said Marshall Front, chairman of Front Barnett Associates, which manages more than $500 million of assets and owns Citi shares.

Front estimates Citigroup could earn 80 cents a share or more with a few years, which could translate to a share price of more than $8.00.

“I don’t know many investments where you can double your money in a few years," he said.

Analysts on average estimate that Citigroup will earn 4 cents in 2010, according to Thomson Reuters.

On Thursday, Pandit said Citigroup’s main businesses are aiming to generate annual profit equal to between 1.25% and 1.50% of their assets, up from 1.15% last year, excluding some items.

If Citi boosts assets in its main businesses by about 5% a year, the company could be earning about $20 billion a year by the end of 2012, equaling its earnings before the credit crunch, when Citigroup had a much larger asset base.

The projections apply to Citigroup assets in its corporate segment and its Citicorp unit, where the company houses businesses it expects to hold onto.

Motivated Seller

Meanwhile, the company’s Citi Holdings unit, which holds businesses and assets that Citi is looking to shed, has set aside enough money to cover expected losses on its local consumer loans, assuming the economy does not deteriorate, Pandit said in the presentation.

Local consumer loans make up about two thirds of Citi Holdings’ assets.

Many investors expect Citigroup to take several years to return to normal profitability, but one investor may be reluctant to wait that long.

The US government acquired about 7.7 billion Citigroup shares at $3.25 apiece last year in exchange for preferred Citi shares. That shareholding amounts to about 27% of outstanding shares.

Government officials said in December that they planned to shed their shares over the course of 2010, but also agreed not to sell any shares until next week, at the earliest. The US still has more than $5 billion of Citi trust preferred securities, as well.

Concerns of a large sale weighed on the bank’s shares for much of the first quarter, but in the last week, market sentiment has improved dramatically.

Citigroup on Wednesday sold $2 billion of 30-year trust preferred securities. The success of that deal signaled to many investors that the outlook for the bank was improving.

In remarks at an analyst conference, Pandit emphasized that the bank intends to try to take advantage of its global footprint, predicting that in Citicorp, its emerging markets revenue pool would grow over twice as fast as the developed markets one.

Pandit took over as chief executive of Citigroup in late 2007. His tenure at the bank has been rocky, with some employees complaining about Pandit working with a small coterie of colleagues he worked with at Morgan Stanley earlier in his career. Reports said regulators pressed for the bank to add more executives with a commercial or consumer banking background to the management team.

Pandit has received only nominal pay for most of his tenure at Citigroup.