Citi Is Worth the Sum of Its Parts for First Time in Seven Years
(Bloomberg) — For the first time since September 2018, investors think Citigroup Inc. is worth at least as much as the sum of its parts.
In a boost to Chief Executive Jane Fraser, who is pushing the turnaround plan, the ratio between the bank’s market capitalization and the value of its assets, known as the price-to-book ratio, equalized on Friday, a sign that the bank is making a comeback from its laggard status on Wall Street.
The ratio is a valuation metric that bank investors follow closely. Because regulators focus heavily on book value and banks’ business models can make their earnings volatile, this ratio provides a more stable reference than other metrics, such as the price-to-earnings ratio, that investors may care more about in other sectors.
Wells Fargo & Co. “This is an important milestone because it reflects a company’s transition from a value destruction phase to a value creation phase,” analyst Mike Mayo said in an interview. Reiterating that Citigroup is his top pick for 2026, Mayo said a price-to-book ratio of 1 or higher “is the difference between a company that doesn’t deserve to exist and a company that deserves to exist.”
Citigroup’s rate has improved this year as the stock has outperformed all its Wall Street peers, rising 55% compared to a 49% gain for its closest rival, Goldman Sachs Group Inc. Bank of America Corp. While it only increased by 23%, the KBW Bank Index increased by approximately 25%.
The bank has faced a number of challenges since the financial crisis, including persistent data and back-office issues that have led to embarrassing “big finger” errors and regulatory penalties. It is currently subject to two 2020 consent orders from the Federal Reserve and the Office of the Comptroller of the Currency, and was fined more than $130 million last year for slow progress on data quality management and risk controls.
In a show of confidence in Fraser, the New York-based firm in October appointed him chairman of the company’s board of directors, making him the last of six major U.S. bank chiefs to hold both titles. Fraser is also the first Citigroup leader to hold two roles since before the 2008 financial crisis.
Under Fraser, who became CEO in March 2021, the bank is implementing a plan that includes improving its back office, reducing headcount and exiting its international retail operations.
Citigroup was the only major bank trading below book value. Still, its price-to-book ratio is well below its peers. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs all have price-to-book ratios well above 2.
–With help from Matt Turner.
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