Seeking Alpha: Citigroup Will Give You The Risk, But What About The Reward?

I don't know if this is an argument in favor of the efficient market hypothesis, but I'm struck by how many large banks seem similarly under-priced on the basis of an excess return model. While the projected return on equity and discount rate for Citigroup (C), JPMorgan (JPM), U.S. Bancorp (USB), and Wells Fargo (WFC) are all different, the resulting fair values suggest about 30-35% return potential.

In the case of Citi, though, it's a rather different risk-reward trade-off than for the others. Citigroup has by far the largest global retail banking franchise and the most upside if ROEs recover further than expected, but also arguably the worst risk management and the most work yet to be done in repairing the balance sheet and business.

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Citigroup Will Give You The Risk, But What About The Reward?