Citizens Facing Spread Compression And Credit Risk, But Fighting Back With Self-Help Measures

Citizens Financial (CFG) remains very much a work in progress, with an almost even balance of things to like and things to lament. Building a stronger core deposit franchise remains high on the list of things-to-do, and that won’t get easier with rivals like Bank of America (BAC), JPMorgan (JPM), and PNC (PNC) pushing harder into Citizen’s footprint (not to mention competition from other in-footprint rivals like M&T Bank (MTB) ), but Citizens’ proactive hedging should help mitigate spread pressure and the company’s active remaking of its balance sheet should help on credit risk. Beyond all of that, too, is a new efficiency program (TOP VI) with pretty ambitious targets.

Citizens has outperformed a bit (relative to other regional banks) since my January update on the company, but that outperformance came with the post-Q2 earnings jump, so that doesn’t count as a “win”. Looking ahead, it’s hard for me to get really excited about Citizens, although it is a little undervalued. I think BofA, JPMorgan, and PNC all have more dynamic plans underway and other banks like OceanFirst (OCFC) are more interesting from a valuation perspective, but Citizens does have the sort of counter-cyclical drivers I want to see now and the stock price is still trading below my valuation estimate.

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Citizens Facing Spread Compression And Credit Risk, But Fighting Back With Self-Help Measures