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04 May 2018

Citigroup: Overview and Analysis

Citigroup, Inc., or citi as it brands itself, is an American financial services company which traces its roots back to 1812. It is another one of the financial companies that received bailouts from the federal government during the financial crisis that arose in 2008, commonly known as the Great Recession. It is a multinational with many facets of business ranging from corporate and investment banking, capital markets, retail banking, credit cards, mortgage lending and more.

Citi’s stock entered 2016 on a downtrend and continued moving sideways until comments by Fed chairman Janet Yellen and the public sentiment that the financial environment was good for banks led to an uptrend. Q2 earnings only beat the street by $0.04, but the company reported that their investment banking revenue was up by 22%. The uptrend continued largely unphased until early 2018, buoyed by consistent, but slim, margins over analyst expectations.

Future Stock Performance

Price clearly moved higher from January 2017 to January 2018, but the moving averages that compose the MACD clearly did not. This is a sign of a bearish divergence and could provide technical justification for the downtrend that the stock is presently embarking upon.

Fundamental explanations of the downtrend starting in January include the fact that Citigroup was fined $25 million by the CFTC (Commodity Futures Trading Commission) in January 2017 based on the action of five traders who were found to have manipulated U.S. Treasury futures between July 2011 and December 2012. The practice is known as market spoofing. The traders would enter large orders on the opposite side of smaller orders to manipulate price by creating an imbalance. They would cancel these phony orders when the smaller legitimate orders had been filled or when they were afraid the fake orders would get executed. Citigroup’s failure to provide sufficient training and have adequate systems in place to detect such activity was cited in the CFTC’s order.

Citigroup was upgraded to a buy from neutral at UBS on April 5th, 2018, so there is cause for hope that the downtrend is merely a pullback of a larger long-term movement. The tax reforms pushed through by the Republicans reduce the corporate tax rate to 21% and this, along with a general pro-business and deregulatory environment, is expected to aid all financial services companies at least through 2018. Citigroup’s stock is generally considered a strong buy as of May 2018.