Near Term Looks Tough, but Citigroup Stock Is Cheap

Narrow-moat

Management believes lower oil prices are benefiting consumers in a manner similar to the United States, although corporate credit in the energy sector is clearly deteriorating. Furthermore, Citigroup's focus on prime customers internationally appears to be providing a buffer against losses. Net credit losses in the company's consumer businesses actually fell from $1.7 billion to $1.5 billion over the past 12 months. Past-due consumer loans in Latin America--dominated by Mexico--have fallen over the past 12 months, as have delinquent consumer loans in Asia. A bigger concern is the decline of revenue in both of these regions. We expect competition to shrink spreads in developed markets over time, but falling benchmark rates have no doubt contributed, as have reduced consumer risk appetites in weakening economies. We don't see these trends reversing in the short run, but think Citigroup's diversification will mute the impact.

The company's institutional clients group reported revenue growth across most categories during the year, thanks in part to good results in rates and currencies and better conditions for credit trading. Core expenses in this segment also fell slightly from 2014. We think volatility could have a deleterious effect in 2016 after several years of fairly benign conditions in capital markets.

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