Last week, Citigroup (NYSE:C) showed a net profit of $2.7 billion, or 9 cents per share when they announced Q2 results, which was down from the 49 cents per share profit of Q1. Citigroup revenue was $22.1bn, down $3.4billion from Q1 2010. Citigroup CEO Vikram Pandit, was happy with what he termed ‘solid’ figures for the latest quarter. Compared with same period last year numbers, consumer banking revenue rose 9% in Latin America and 10% in Asia, more than offsetting declines of 3% in North America and 5% in the Europe-Middle East-Africa region. On a global basis, consumer banking revenue rose 2% from a year earlier, to $8.03 billion. Trends were similar for transaction services, with revenue rising 5% in Latin America and 6% in Asia and falling 3% in North America and 1% in the Europe-Middle East-Africa region.
With that in mind; Citigroup continues walking the green mile to sustained profitability this quarter as the Treasury Department announced it will sell 1.5 billion more shares of Citigroup (NYSE: C) stock over the next couple of months. This is the third tranche sale in the government’s Citigroup bailout fund recovery effort. The proceeds are part of the repayment of funds from Citigroup’s portion of the $700 billion financial bailout. The third tranche of Citigroup stock sales will start immediately and be completed by Sept. 30, according to a spokesperson at the Treasury.
The government has already sold 2.6 billion shares for $10.5 billion in the first 2 tranche sales over the course of the last 2 fiscal quarters. Citigroup originally received $45 billion in taxpayer funds through the Troubled Asset Relief Program (TARP). Of the $45 billion, $25 billion was converted to a government-ownership stake through shares of common stock with Treasury receiving 7.7 billion shares at a share price of $3.25. At that time, the stake equated to 27 percent of the company. Citigroup repaid the $20 billion unconverted portion of the loan last December. Citigroup stock over the past 52 weeks has ranged in price from a low of $2.56 to a high of $5.43.
The Treasury Department has stated its intentions to sell its entire stake in Citigroup by the end of this year. The first tranche of sales, covering 1.5 billion shares, concluded in May. The second, which covered another 1.1 billion shares, ended recently after beginning in June. Once those shares are all sold, I would expect some sort of share repurchase by the company, or perhaps a reverse split to reduce the bloated share count.
Though heavily criticized, and rightly so for bailing out these huge financial institutions, it is nice to know that at least there will be a return on the Citigroup investment by the government when all is said and done that can be used to pay off some of the deficit it created. Simple math shows at least a 10 billion dollar increase in share value at an average price of $4.00 dollars.
It is also good to see Citigroup continuing its course of return to a core banking institution. The company continues to re- evaluate its assets and look for buyers for assets deemed expendable by Citigroup in its return to focusing on its core businesses. Cautious optimism is the thought also with non US markets continuing to show growth for the company, particularly Latin America and Asia. While the growth has been good in those regions, it is still on fragile footing with global economic concerns still prevailing. Citigroup also is beginning to see real reductions in operational costs from strategies it implemented over the past decade or so of severing long time employees and management and bringing in less experienced and less expensive personnel to replace them. The initial cost of those severance packages may have been worth it considering the state the company found itself in, in late 2008 and into 2009. One has to question the decision though as there is no substitute for experience in the highly competitive Banking business. Overall, Citigroup is getting healthier as a company as it trims the excess fat, sells off non essential assets and toxic debt is painstakingly removed from its ledger. Citigroup is on an upward trajectory if it continues to execute its plan.
Disclosure: No position in C at this time
By Relmor Demitrius
