Shares of Citigroup Inc have had an amazing run this year. Depending on when you bought and when you sold, you could have booked gains up to 70% or more. Lately, however, the stock has been languishing as reality over the company’s prospects sinks in. For investors holding C shares, some may be concerned whether this is a good move.
Whether Citigroup stock is a good investment or not could largely depend on your investment aims and your planned holding time.
For short term traders, it looks like C could be “dead money” for the immediate future. A big concern is that the bank company, like all the other majors, is hoarding cash. This concerns investors because it means they have a large amount of capital under management that is being set aside for liquidity requirements, and it won’t be earning a high rate of return. Considering the poor job C has done lending money in recent years, some speculators might actually think it’s a good thing the company isn’t just lending it out, with no hope of getting it back. Still and all, a bank company that doesn’t lend won’t earn.
The fact that loan quality is still such a big worry even after the “financial crisis” has continued on for over a year is also a concern. Just how many bad loans did this company make, one wonders. Not only that, but if the overall economy deteriorates, the rate of defaults will increase as well. This means more losses could mount.
Long term the prospects look a bit better. The fact the company has so much cash on hand means the financial strength of the firm is improving. A worldwide iconic banking firm like Citigroup is nothing without the air of invincibility that huge cash reserves bring. Citigroup has suffered a lot in the way of prestige in the last year, so battening down the hatches to survive any further financial storms certainly seems sound.
Investors who go long C are likely to believe in the job that CEO Vikram Pandit has done at the helm. Some worry that Pandit is unfocused for his strategy for recovery. When he makes comments like the following, you can understand the confusion.
“Our distinctiveness is we connect the world better than anyone else. We have a great capability of building a business around that. And we are in the process of building a culture around that,” he told the New York Times.
That’s not exactly comforting for those of us who would like to see the company focus on its retail banking operations. These are the bread and butter for profits for any lending institution. Citigroup still has an immense network of ATMs and branches that can generate enormous profits, but one wonders if the company is executing a clear enough strategy for recovery.
When you add in the fact the C still has to answer to the U.S. government for many of its decisions, it’s not hard to see why many investors took profits when the shares hit $5 and don’t seem to be coming back as rapidly as they left. Until they feel many of the fundamental problems of the company are solved, they will continue to fear putting the hard earned money into an investment in C stock.
Are you holding C stock? Are you short? Let us know your thoughts on your current philosophy for Citigroup investing.
Citigroup Inc shares have reached their lowest point since August. C shares closed trading yesterday at $3.99, a level not seen for several months.
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