The first quarter of 2024 was the banner one for Citigroup Inc. C, with the stock outperforming the S&P 500 Index.This follows the 13.7% rally record by the company last year.
Looking at its price performance, it seems that investors are turning bullish on this big bank, owing to its restructuring efforts and upbeat 2024 outlook. Moreover, favorable macroeconomic factors have driven positive sentiments for this bank stock.
Notably, of the banks that are part of the S&P 500 Index, only Citigroup, Wells Fargo WFC and JPMorgan JPM outperformed the index. These three currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
In first-quarter 2024. C, WFC and JPM gained 23%, 17.8% and 17.8%, respectively, outperforming the S&P 500 Index’s 10.1% rally.
Price Performance in Q1
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Image Source: Zacks Investment Research
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Now, let us check out the reasons that drove investor confidence in Citigroup’s stock.
One of the key reasons for the bullish investor sentiments was the company’s progress on its organizational restructuring to simplify and eliminate extra management layers. This will make the decision-making process swifter, drive increased accountability and enhance the focus on clients.
At the end of March, Citigroup announced the completion of major actions to simplify its operating structure and improve performance, which were initially announced in September 2023. Such efforts will make the decision-making process swifter, drive increased accountability and enhance the focus on clients.
Per management, “after having reset Citi’s strategy and undergone these consequential changes, we will continue to execute on our vision to be the preeminent banking partner for institutions with cross-border needs, a global leader in wealth and a valued personal bank in our home market and focus on our commitment to transform the company for the long term.”
The reorganization trims management layers to eight from 13 and its global workforce by 20,000 over the next two years. Since September, the company has eliminated 5,000 jobs.
Along with its fourth-quarter 2023 results released in January, the company remarked on reducing 1,500 managerial roles, comprising 13% of its worldwide leaders. It was then projected to create annual savings of $1 billion.
This aside, Citigroup is nearing the exit of its global consumer banking business. It has completed the sale of consumer banking operations in nine markets. In addition, the company has made notable progress in winding down consumer banking operations in Russia, China and Korea. Citigroup continues to operate in Mexico but anticipates separating the business in late 2024 and pursuing an initial public offering in 2025. Such exits will free up capital and help it pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke fee income growth.
Also, Citigroup’s encouraging guidance seems to have driven investor confidence in the stock. Particularly, along with the fourth-quarter 2023 results, the company announced the 2024 revenue forecast of $80-$81 billion, suggesting a rise from the $75.3 billion reported in 2023. We project revenues to reach $80.06 billion in 2024. Also, over the medium term, it expects revenues, excluding divestitures, to grow 4-5% and the return on tangible common equity to be 11-12%.
On the macro front, the Federal Reserve continued to signal a 75-basis-point cut in rates this year. At present, with the central bank keeping the rates stable at 5.25-5.5%, deposit costs are stabilizing and even coming down. Thus, pressure on the net interest margin is likely to decline eventually. As the economy remains strong, the lending scenario is likely to be decent. Hence, C’s net interest income is expected to be stable in 2024.
Citigroup’s capital distribution activities seem decent. Last year, the company distributed approximately $6 billion to shareholders through dividends and share buybacks. Management expects buybacks to be modest in the first quarter of 2024. Supported by decent capital and liquidity position, capital distribution activities seem sustainable. Such moves are likely to enhance shareholder value and stoke investor confidence in the stock.
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