Citigroup Earnings: Favorable Market Conditions Boost Profitability; We View Banamex Deal Positively

Key Morningstar Metrics for Citigroup

• Fair Value Estimate: $82.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Citigroup’s Earnings

Favorable market conditions helped Citigroup C report good profitability in the third quarter, with earnings per share of $1.86, equating to a return on tangible equity of 8%. Excluding good impairment related to the Banamex deal, the bank reported adjusted EPS of $2.24 and a ROTE of 9.7%.

Why it matters: Shares reacted positively to the results and inched up about 4%. Management maintained its expectation of 10%-11% ROTE in 2026, as the Street remains focused on the sustainability of these returns across the cycle, given the bank’s poor record over the past decade.

• The bank’s recent results may suggest it has turned the corner and is positioned to perform well in the upcoming cycle. While the recent results are encouraging, we would like to highlight that the current environment is highly favorable to Citi’s business mix.
• Citi has a relatively higher exposure to trading (markets), investment banking, credit cards, and wealth management. These businesses are doing quite well in the current environment, and we would like to see more evidence before we give the bank credit for sustaining higher returns.

The bottom line: We plan on maintaining our $82 per share fair value estimate for no-moat-rated Citigroup after incorporating third-quarter results, and continue to believe that the shares are expensive.

Coming up: Citigroup sold a 25% stake in Banamex to a company wholly owned by Mexican billionaire Fernando Chico Pardo, with the transaction expected to close in the second half of 2026.

• The transaction was done at an implied value of 0.95 times tangible book value, and values the asset at $9.2 billion, which we think is a fair price for the asset.
• We view the transaction positively as it is strategically aligned with the bank’s objectives of exiting Mexico’s retail operations and setting up the conditions for a public listing or a separate transaction for the remaining stake. Stake sale to a local owner should also help appease regulators.