Citigroup Inc is another ridiculous cheap stock that is trading at just 8,31 times estimated 2016 earnings. A little bit cheaper than Bank of America. Citigroup Inc is also trading below its book value. It feels like a «bank robbery» to buy that stock.
Their revenue is expected to decline from $19,27 billion to $17,46 billion, which means an earnings per share of $1,03 and that is down from $1,51 last year, according to Reuters. Once the biggest bank, now ranked number four by assets, it`s obviously going in wrong direction for Citi.
The financial crisis in 2007, hit the bank hard as they were exposed to banks, and indirect to real estate. That was bringing the bank down. Citi were one of the few banks that knew a lot about the real estate market before the financial crisis. Let`s go back in time to 2005.
Citigroup introduced Plutonomy.
This buzz word was initially coined by analysts at Citigroup in 2005 to describe the incredible growth of the U.S economy during that period despite increasing interest rates, commodity prices and an inflated national debt.
Citigroup analysts argued that as such an economy continues to grow in the face of contradictory elements, the more important the society`s ultra rich become to maintaining such growth. The analysts also believed that in addition to the U.S, Canada, Great Britain and China are also becoming plutonomies.
Plutonomy is economic growth that is powered and consumed by the wealthiest upper class of society. Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of the society becomes dependent on the fortunes of that same wealthy minority.
This leads to the next step: Plutocracy, which is a government controlled exclusively by the wealthy either directly or indirectly. A plutocracy allows, either openly or by circumstance, only the wealthy to rule. This can then result in policies exclusively designed to assist the wealthy, which is reflected in its name.
On October 16, 2005, Citi wrote a letter to its rich customers, telling them that the world was divided into two blocks; the Plutonomy and the rest. Their conclusion was that the United States was no longer a democracy, but it become a plutonomy.
A society controlled by the top 1% of the population that have more wealth than the bottom 95% of households combined.
Citi warned about the growing gap between rich and poor and said it was a new era of aristocracy. One of the U.S bank regulators, Bill Black uncovered the savings and loans scandal in the 80`s, so trouble in the banking sector is not something new.
In September 2004, FBI publicly warned about a mortgage fraud ‘epidemic’. The Bush administration transferred (from 9/11 case) 500 white color FBI specialists out of dealing with white color crime. It was the greatest wave of white color crime in the world’s history. FBI said that 80% of the mortgage losses was induced by lender personal. No one is in prison for the crime, and all the CEO`s have gone away with it.
The bursting of the U.S housing bubble, which peaked in 2004, caused the values of securities tied to U.S real estate pricing to plummet, damaging financial institutions globally. The financial crisis is the worst financial crisis since the Great Depression of the 1930`s.
It threatened the collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but the stock market still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment.
The crisis was a result of high risk, complex financial products, undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.
Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st -century financial markets.
In the immediate aftermath of the financial crisis palliative monetary and fiscal policies were adopted to lessen the shock to the economy, but don`t complain. You were warned.
Bank stocks are very cheap relative to the markets and analysts have trimmed their Citi target prices marginally, despite the rise of interest rate. JPMorgan lowered its price target to $54, and Deutsche Bank reiterated a Hold rating for Citigroup Inc.
Citi is trading at $44,99, up +1,67% on thursday which is another great day for Citigroup this week. The stock has been trading to the upside all week followed by other banks in that sector.
Investors will look out for a beat-the-street surprise on friday. A surprise they have provided the last four straight quarters.
Watch out for the report on Friday.
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Ket Garden
Shiny bull 