Citigroup or Bank of America?
Citigroup and Bank of America have recovered well from the financial crisis. They have generated steady profits in the last few years and have strengthened their capital. Both these banks have opportunities to deliver good value to shareholders and to produce long-term growth. Bank of America (BAC) and Citigroup (C) are two of the banks (XLF) (VFH) that currently trade at the most attractive valuations. The stocks are extremely cheap and trade below their book values. Analysts expect future earnings to grow.
Many analysts believe that the cycle for the downward trend for banks is over, and investor sentiment will get better on banking stocks. Shares of Citigroup and Bank of America have shed 7.4% and 9% year-to-date, respectively, and provide a lucrative entry point for investors looking for long-term growth.
Citigroup and Bank of America passed the Fed’s stress tests in June this year and raised their dividend payouts. They have solid leverage ratios and a strong capital base. Further, both these banks are currently restructuring their businesses. While they are comparable in terms of size and product offerings, they have their respective differences. Citigroup’s return on equity (or ROE) was the hardest hit at the time of the financial crisis, and the bank nearly collapsed. The only bank among the big four banks to have a lower ROE than Citigroup is Bank of America. J.P. Morgan (JPM) and Wells Fargo have the highest ROEs. This explains the relatively lower price-to-book ratios for Citigroup and Bank of America.
In this series, we will compare Bank of America and Citigroup on the basis of their 2Q earnings, profitability, cost-cutting initiatives, and their interest rate sensitivities. We will also discuss their consumer banking businesses and relative performance of their trading and investment banking segments. Lastly, we will look at their dividend payouts, valuations, and analyst ratings.
First, let’s look at how they performed in the second quarter.