Citigroup Analyst Says $400M Fine Ends 'Major' Stock Overhang

Citigroup was hit with a $400-million fine by the Office of the Comptroller of the Currency on Wednesday.

The Citigroup Analyst: BofA Securities analyst Erika Najarian maintains a Buy rating on Citigroup Inc C with a $74 price target. 

The Citigroup Takeaways: The biggest question Najarian has from the cease-and-desist letter is simply “is this it?” the analyst said in a Thursday note. 

After conversations with Citigroup, Najarian said she believes this is the sum of the punitive measures, and there are no restrictions on the bank's business activities.

While there is a significant amount of work to do, including a written plan of action, this seems light for damages, she said.

This provides clarity on regulatory issues that were “a major overhang for stock,” Najarian said. 

“Citigroup has found productivity savings to fund the $1 billion in risk investments for ’20, and we expect some directional guidance on ’21 during their Oct. 13 call.”

Citigroup has some risk going forward due to a change in how they’re prioritizing investments, the analyst said.

“We think there is a risk to ’21 consensus expense expectations, and note that $1 billion in additional costs would shave 38 cents off our ‘21E, to $5.80, with no offsets.”

The risk-reward on Citigroup is “skewed to the upside,” she said.

Citigroup shares are trading at 63% of total book value, and BofA's price target is based on 7.7x estimated earnings per share for fiscal 2021, Najarian said. 

Citigroup will report third-quarter earnings Oct. 13. 

C Price Action: Shares of Citigroup were down 0.37% at $44.68 at last check Thursday. The stock is down 44% in 2020.

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