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Morningstar | Citigroup Has Changed Drastically Since Crisis but Still Needs to Prove Itself Through Next One

A smaller, more focused, and recapitalized Citigroup is prepared to reward shareholders over the next few years, targeting $60 billion in capital returns over three Comprehensive Capital Analysis and Review cycles. That figure could climb even higher if the regulatory environment changes favorably. That said, the company is still arguably "too big to fail," with complex operations spanning multiple continents. As such, it is not likely to ever completely escape the cost burdens of regulation and litigation, and it's not clear that there are true synergies between some lines of business. However, we think Citigroup investors should be able to sleep more soundly over the next decade.In our view, Citigroup's truly global presence differentiates the bank from nearly all of its U.S.-based peers. With significant revenue coming from Latin America and Asia, the bank is poised to ride the growth of these economies through the coming decade without excessive exposure to any particular country. Citigroup is not merely a domestic lender, and it should remain a bank of choice for global corporations, thanks to its ability to provide a variety of services across borders. Developing economies should offer an attractive combination of high margins and rapid credit growth over time, especially in comparison with the low rates and declining leverage that we expect to persist in the United States and other Western economies for the next few years. Investors should be prepared for volatile results out of emerging economies. However, with just under $150 billion in common equity Tier 1 capital, Citigroup is now prepared to weather most storms, in our opinion.On the downside, it's still difficult to see how some of Citigroup's lines of businesses fit together. Latin American and Asian consumer banking accounts for a material portion of total revenue. We're not convinced that this is more valuable when connected to the U.S. consumer and institutional business, and we would not be averse to further simplification of Citigroup's business. Furthermore, the minimal overlap in operations will limit efficiency as opportunities to increase revenue and reduce expenses are limited.