In every industry, there is a stock which lags the leaders, individually you may think it is doing ok but compared to the competition they seem to be better. In the banking industry, the company that lags is Citigroup. There are multiple reasons for it and CEO Jane Fraser is trying to improve the company.

In an article by Tatiana Bautzer and Saeed Azhar of Reuters, if you bought Citigroup in the last year, you likely made money as the stock is up 49% since September of 2023. However the stock trades at 0.57 of book value that is short of JPMorgan Chase of 1.73 and Bank of America of 1.1.

Wall Street investors welcomed the job cuts of 5,000 for the workers represents expenses to control and investors similar to Daniel Babkes, portfolio manager for Pzena Investment Management which manages $60 billion and owns Citigroup. Mr. Babkes also says there is potential and as the stock is low, there should be room for upside growth.

Ian Lapey, a portfolio manager of Gabelli Funds, which manages $30 billion and owns Citigroup, says the outlook for Citi is improvement. The jobs cuts were good, the quality of the loan portfolio and it has reduced exposure to paper losses on securities.

Hunter Doble, a portfolio manager at Hotchkis & Wiley which manages $31 billion, believes the job cuts improved efficiencies. He noted in Citigroup can meet the bank’s target of 11 to 12% return on tangible equity, the stock should move forwards.

Similar to every other bank, wealth management is a potential growth area and Citigroup recently hired outsiders to run the departments. Bank of America analyst Ebrahim Poonawala noted the outsiders will drive change.

Existing employees will need to sign on to the changes as the promotions after the job cuts went to outsiders.

CEO Fraser said Citi will leverage its relationships with the world’s largest corporations to boost revenue in investment banking and wealth management.

Another area of focus is Citigroup’s US consumer business which is much smaller than its competition. Retail deposits account for $105 billion of the $1.3 trillion in deposits, compared to JPMorgan Chase and Bank of America which have more than $1 trillion in consumer deposits. Part of the reason is the branch network, Citi has 700 branches, the others have much more. (if a bank has large consumer deposit, there will be a healthy balance which the spread between interest paid to consumers and loans to consumers and business).

Linking to dividend paying stocks, when you are doing your homework for your investments, you will notice some companies have advantages over others. The companies in 3rd, 4th and beyond have to great execution compared to the top 1 or 2 just to move towards a level playing field. It does not mean the top 1 or 2 has to continually improve, but with their built-in advantages they seem to be natural choices for your investments. You can hope for the underdog, it is a great story but if you want consistent profitability, it is better to choose the stocks with the best advantages.

There are more questions than answers, till the next time – to raising questions.