In a buoyant session last night when investors heaved a sign of relief after release of the minutes of the latest FOMC meeting signalled a potential slowdown in the Fed’s interest hike hikes, and the banking sector was largely trading in green, the deeply red 2.2% fall in $Citigroup(C)$ was an eyesore.
The abating inflation from its peak allows breathing space for the Fed to pivot to a less hawkish stance to avoid hard-landing the U.S. economy into a deep recession, which would otherwise lead to widespread economic slowdown and surging bad debts. Barring a recession, the higher interest rates have been improving the net interest margins of banks.
Nevertheless, I found a couple of news yesterday that may explain the exceptional fall in its share price last night.
Firstly, the Mexican bank Grupo Financiero Inbursa just announced its pullout of the bidding process for Citigroup's Mexican retail arm Citibanamex.
I believe that the market may have over-reacted to the news, since from the beginning of the bid process, it had been made known to the market that it was not going to be smooth-sailing for other local players to make an acquisition offer to Citigroup, given significant overlap in operations such as bank branches and job functions, while Citigroup’s ask price is not readily affordable by small players looking for expansion.
Secondly, Citigroup was just faulted by the U.S. banking regulators for poor data management. Citigroup is the only bank that was found to have the shortcoming, and is required to address weaknesses in how it manages financial data.
Citigroup has been trading at a much lower P/E ratio below 6.5, compared to its peers which are largely trading above P/E of 10. In fact, the recent accumulation of Citigroup’s shares by Warren Buffett’s $Berkshire Hathaway(BRK.B)$ has been a sign of undervaluation of the bank and strong vote of confidence in the bank by the legendary investor.
Hopefully, its new CEO Jane Fraser's efforts to sell unprofitable international operations and streamline its major wealth centres will bear fruits for its shareholders sooner rather than later.
Comments