Citigroup Has Likely Passed The Worst Of The Cycle

I’ve liked Citigroup (C) as a more contrarian call in the larger bank group, and that has worked out alright since the last quarter, with the shares outperforming the bank’s larger peers like Bank of America (BAC), JPMorgan (JPM), PNC (PNC), U.S. Bancorp (USB), and Wells Fargo (WFC). To be clear, this was less a “this is a great bank” call and more of a “it’s not nearly this bad” call, and it seems as though the Street has eased up on some of the pessimism around Citi’s outlook over the past few months.

I expect Citi’s performance to be below-trend through 2022, but I believe Citi has seen the peak in provisions, with actual charge-offs likely to peak in the first half of 2021. Low rates will remain a headwind for some time, and I think Citi’s non-U.S. exposure could be a relative liability over the next couple of years. Even so, if Citi can muster any growth in long-term core earnings (relative to 2019), these shares are significantly undervalued.

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Citigroup Has Likely Passed The Worst Of The Cycle