Shares of Citigroup Inc. (NYSE: C) were given a boost Tuesday following a reiteration rating from Deutsche Bank, lifting shares of the beleaguered bank to close down only 2 cents, during a market session replete with sellers outnumbering buyers of shares of money-center banks.
Deutsche’s analyst Matt O’Connor reiterated a �Buy� rating for the bank and price target of $5.50 for the stock following a meeting with Citi Chief Financial Officer John Gerspach on Monday.
Addressing concerns of market volatility and exposure to Europe’s debt crisis, O’Connor said recent volatility is not expected to have �an adverse impact� on the bank’s valuation, citing reduced risks taken at Citi’s trading business. Gerspach expressed little concern regarding the ongoing debt crisis in the European Union, said O’Connor.
Gerspach believes Citi can achieve a return on assets within the 1.25 and 1.5% range, and said, at only 1%, shares of Citi are �attractive.�
Gerspach said he bases a $5.50 target upon a 10-times �normalized� earnings per share (EPS) of 53 cents, which falls at the bottom of analysts’ estimates range.
O’Conner’s �Buy� rating reflects improvement in the banks’ strong capital and reserves, low expectations place upon the bank, and low valuation metrics.
Other notes from O’Connor’s meeting include:
1.Credit outlook stable;
2.Net interest margin expected to decline for the remainder of the fiscal year;
3.Continued cost-cutting measures;
4.No change in details regarding US government sale of common and preferred shares;
5.Mortgage repo risk lower than competing banks.
O’Connor cites several risks, however, including:
1.Continually worsening consumer credit losses;
2.Potential for credit market freeze-up;
3.Weaker global market;
4.Premature sale of US government stake in Citi
Shares of Citi have recently been the beneficiary of large-block buying by hedge fund heads John Paulson, Eric Mindich and George Soros, who collectively bought nearly 500 million shares last quarter SEC filings show, with more than 120 other hedge funds stating they bought shares of Citi during the last quarter.
Paulson & Company reported holding 506.7 million shares of Citi, up nearly 70 per cent from the third quarter, according to documents filed with the SEC. Mindich’s Eton Park Capital Management LP holds the most shares of the New-York-based bank, increasing its stake in the bank by 138 million shares during the fourth quarter ended December 31. Soros Fund Managenment LLC said it owns 94.7 million shares of Citi, according to SEC documents.
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