Pacing through the corporate presentation which accompanied the results, the headline numbers did not look particularly dramatic with a reduced cost of credit driving the earnings before tax (EBT) line whilst higher income tax expense meant that the diluted EPS line only rose 1% (year-on-year).
What did impress me about the numbers - aside from their relative solidity versus poor current sentiment levels - was the continued desire to simplify the business and hence bring the cost base under control. This was best shown by the fall in products/branches/headcount at the Citicorp consumer banking business...
...and reflected in the clear efficiency targets for 2015 across all divisions:
Citi Holdings also saw a further decline in assets although at 3% it was the smallest quarter-on-quarter decline in recent history. Citi Holdings remains equivalent to 6% of Citi's overall asset base. Over 60% of this bad book are North America mortgage centric:
Unsurprisingly there was positive progress on the capital base (tier 1, leverage ratio). More interesting was the continued progress in the tangible book value (up nearly 2% quarter-on-quarter). Even with the share trading up 3%+ in the pre-market in the US$47s the company is trading at just x0.83 tangible book.
Given the generation of a return on tangible equity of 9.6% during Q1 14 the shares remain up to 15% undervalued i.e. a target price of around US$54 (interestingly as shown in the share price graph at the start of this analysis around the highs for the share in January this year).
Of course the debate is the variability of this ROTE line (Q413 6%, Q113 10.3% for example) BUT taking into account the simplification story above the capability to sustain/build on such returns is a clear potential scenario for the shares.
Unlike, for example, the JP Morgan or Wells Fargo number I reviewed on Friday, Citigroup offers value today even post the initial results bounce.
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