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Stock Strategist

Progress Slows at Citigroup, but Potential Remains

Citigroup reports full-year 2013 earnings below our expectations, but our fair value estimate is intact.

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There are plenty of reasons to be wary of  Citigroup (C). Over the past few decades, the bank has teetered on the edge more than once, taking massive losses on emerging-markets loans in the 1980s, commercial real estate in the early 1990s, and subprime-related securities in the 2000s. Citigroup has made progress over the past five years by raising capital, shedding assets, and bulking up its board of directors and management team. However, with operations spanning several continents, the bank in many ways still embodies the "too big to fail" concept.

For the final quarter of 2013, Citigroup reported net income of $2.7 billion, or $0.85 per diluted share, bringing full-year income to $13.9 billion, or $4.42 per share. The results were slightly less than we expected, but the difference was based primarily on the rate of provisioning. We therefore do not expect to alter our $45 per share fair value estimate for the narrow-moat bank, and we believe potential upside is limited at the current stock price.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.