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Why TPG-Axon Capital Management exits its stake in Citigroup

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TPG-Axon Capital Management and Citigroup 

The fund traded notable positions in the second quarter. It initiated new stakes in Baidu Inc. (BIDU) and Monsanto Co. (MON). The fund also sold its shares in Halliburton Co. (or HAL), FMC Corp. (FMC), and Citigroup Inc. (C). The fund decreased its position in Equinix (EQIX).

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TPG-Axon exited its position in Citigroup (C). Citigroup accounted for 4.35% of the fund’s first quarter portfolio.

Company overview

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Citigroup is the leading global bank. It has ~200 million customer accounts. It does business in more than 160 countries and jurisdictions. Citigroup provides consumers, corporations, governments, and institutions with a broad range of financial products and services. Its services include consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Revenue and net income beats estimates

Citigroup’s revenues were $19.6 billion in 3Q14. They increased 9% from the same period last year. The increase was driven by 8% growth in Citicorp’s revenues. Citicorp’s revenues grew due to increased revenues in Institutional Clients Group (or ICG) and Global Consumer Banking (or GCB), and a 30% increase in Citi Holdings’ revenues.

Citigroup’s net income increased 7% to $3.4 billion in 3Q14—from $3.2 billion in the same period last year. The increase was driven by higher revenues and a decline in credit costs. This was partially offset by higher operating expenses.

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Operating expenses were $12.4 billion in 3Q14. This was 6% higher than the $11.7 billion in the same period last year. The increase was a result of higher legal and related expenses. It was also due to repositioning costs in Citicorp, an adjustment to incentive compensation expense as a result of better-than-anticipated performance year-to-date (or YTD) in ICG, and higher regulatory and compliance costs.

Citicorp had $18 billion in revenues in 3Q14. Revenues increased 8% from the same period last year. Citicorp’s net income decreased 4% from the same period last year. It decrease to $3.2 billion. This was a result of higher operating expenses.

Citi Holdings’ revenues in 3Q14 increased 26% compared to the same period last year. Revenues increased to $1.6 billion. The increase was driven by gains from the sales of consumer operations in Greece and Spain. It was also driven by lower funding costs.

It was partially offset by losses on debt redemption. This was associated with funding Citi Holdings’ assets. Citi Holdings’ net income was $272 million. This was up from a loss of $113 million in the same period last year. It reflected higher revenues, lower operating expenses, and lower net credit losses. This was partially offset by a lower net loan loss reserve release.

Management also added that “Our consumer bank and institutional business each had solid performance during the quarter and generated stronger revenues both sequentially and year-on-year. The revenue improvement was evident across regions and products. With Citi Holdings again turning a profit and the utilization of additional deferred tax assets, we again demonstrated progress against two execution priorities and increased our capital base.”

Citigroup’s Mexico unit fined

Citigroup’s Mexico subsidiary, Banamex, was fined $2.2 million for inadequate controls. It produced loans that violated lending rules by the nation’s bank regulators. The Banamex unit made bogus loans to Oceanografia. The loans were secured by promises that state-run Petroleos Mexicanos would repay the bank for work that the oil-services firm performed. The fraudulent loans cost the bank more than $500 million.

The next part of this series, we’ll discuss TPG-Axon’s decreased position in Equinix (EQIX) during 2Q14.

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