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By Jeremy Glaser and Jim Sinegal | 10-17-2012 12:00 PM

Are Big Banks a Bargain?

Leadership changes and litigation risk should not scare investors away from financials, as quarterly results show that several names are currently a fairly good deal, says Morningstar's Jim Sinegal.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We've had earnings from most of the big banks so far, and I'm here today with Jim Sinegal. He is the director of financial-services research here at Morningstar. We'll take a look at those earnings and see if the companies' stocks look attractive. Jim, thanks for talking with me.

Jim Sinegal: Good to see you again.

Glaser: Let's start with the most surprising news which was that Citigroup is getting a new CEO. It announced that the day after their third-quarter earnings. Why was Vikram Pandit out? What’s happening there?

Sinegal: Well, we've gotten some more information or at least rumors in the last day or two since Pandit announced his resignation. It was definitely a big surprise at the time. Citi had reported a pretty good quarter in our opinion. It looks like that the resignation stemmed from some problems with the board. Over the last few years, Citi has put into place a really strong board of directors. There are some experienced banking executives, and a couple of directors who have done successful turnarounds. It's a really strong board. It seems like Pandit was clashing with them, and the only way to resolve their dispute was to get Pandit out.

Glaser: So, who is going to be running Citi now, and do you think he's up to the task?

Sinegal: The new CEO of Citigroup will be Michael Corbat. There is not a lot known about him at this point. He was most recently in charge of Citi’s Europe, Middle East, and African operations. Given that Citigroup's focus is on developing in emerging markets, that's definitely good experience to have. [He has] a long background in banking, and at Citigroup that's something that regulators wanted to see and a lot of investors wanted to see.

Vikram Pandit was criticized as not a real banker having come from investment bank. The new CEO has a lot more banking experience, and finally he's spent some time overseeing Citi Holdings. [That's a] pretty complicated mix of Citi's worst assets. It's good to have a CEO that’s familiar with that book as they try to run down the rest of it.

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