To The Moon

Citigroup Inc. (NYSE:C) investors could be wondering why the selloff over the regional banks also battered C, as U.S. banks dealt with the immediate aftermath of the collapse of Silicon Valley Bank of SVB Financial Group (SIVB) and Signature Bank (SBNY). The Fed's Bank Term Fu$Citigroup(C)$ nd Program, or BTFP, has helped to stem the risks of more bank runs, as depositors' confidence in the stability of the U.S. banking system appears to be restored. Notwithstanding,Moody'sput the credit ratings of First Republic Bank (FRC) and five of its peers on downgrade watch. The rating agency was particularly concerned with the double whammy of their "reliance on uninsured deposit funding and unrealized losses in their asset portfolios." We believe investors spooked by the failure of the SVB fallout have zeroed in on companies with a significant long-durationdebt securities portfolio laden with substantial unrealized losses. We covered in a recent The Charles Schwab Corporation (SCHW)articlediscussing why despite its banks having an insured deposit base of more than 80%, it was pummeled. However, the "indiscriminate" selling has also provided savvy investors another opportunity to add good banks with strong liquidity and a robust balance sheet. And we think the opportunity in C has arrived once more. Our previous article in C suggested that investors wait for a "broad-based pullback" before pulling the buy trigger. While C followed the broad market recovery from its October lows to form its early February highs, it also turned out to be an astute bull trap or false upside breakout. Hence market operators drew unsuspecting investors in a rapid upward move before distributing those gains astutely. However, with the recent steep selloff, as C declined 16% from its February highs, an attractive opportunity has been presented. Investors parsing the opportunity in Citigroup must assess its exposure on its available-for-sale or AFS and held-to-maturity or HTMportfolio. Accordingly, C reported an AFS portfolio of $255.6B at amortized cost, with a fair value of $249.7B. Its loss ratio of 2.3% is thus manageable. It also posted an HTM portfolio of $268.9B at amortized cost, with a fair value of $243.6B, with unrealized losses of $25.3B. The AFS and HTM portfolio and their corresponding unrealized losses as a ratio of their asset base are relatively small compared to SVB, Charles Schwab, orBank of America(BAC). Accordingly, Citigroup posted total assets of $2.42T in 2022. In addition, it reported total deposits of $1.37T and gross loans of $658B. With cash and equivalents at the end of last year amounting to $325B, we believe Citigroup has ample liquidity to account for those unrealized losses and any unforeseen withdrawals. Moreover, Citigroup is expected to benefit from the deposit migration from these smaller banks, even as the U.S. will backstop all depositors. What risk is there for customers to pull out their funds and direct them to the strongest banks under themost stringentregulations by the Fed? Hence, we aren't surprised that Bloomberg reported that "US bank depositors are flockingto the bigger banks, fearing a crisis spread." As such, "too-big-to-fail" banks like Citigroup have benefited from the significant inflow of funds, further improving C's capital position. C price chart (weekly) (TradingView) With the steep selloff, C has inched closer to its December lows, which saw buyers returning to stem a further slide. We view the selloff constructively, as the market has sold off big banks like C in a broad risk-off move. However, the market will likely wake up subsequently from the indiscriminate selling as savvy investors return to pick up the pieces at attractive buy points. Citigroup Inc. last traded at an NTM normalized P/E of 7.6x, below its big bank peers. With that in mind, we see an attractive buying opportunity for Citigroup Inc. stock at the current levels, bolstered by constructive price action that could potentially form a bottom. Rating: Buy (Revised from Hold). Source: seeking alpha