Thursday, April 16, 2020

Covid-19 Hitting Citigroup's Card Business, But The Capital Looks Okay

Citigroup’s (C) large credit card business gives it quite a bit more leverage to consumer spending and consumer health, and that’s not a great thing right now as Covid-19 has slammed the brakes on consumer spending. Likewise, while Citi has a great trade finance and global cash management franchise, that’s not so helpful when global trade grinds to a halt.

Citi has already reserved up to close to half of its “severely adverse” loan loss scenario, but I expect further provisions in 2020 and I think 2021 charge-offs could be almost double 2019 levels. Even so, I expect Citi will remain solidly profitable on a pre-provision basis and profitable on a post-provision basis, with adequate capital to get through this crisis without halting dividends. The Street clearly doesn’t agree and the shares trade at a substantial discount to my fair value estimate, but I think there’s opportunity here for more aggressive investors.

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Covid-19 Hitting Citigroup's Card Business, But The Capital Looks Okay

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