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Morningstar | Revenue Growth Remains Challenging for Citigroup in Tougher Market Environment

A smaller, more focused, and recapitalized Citigroup should have better operational performance over the next few years. The bank is set to exceed its original target of $60 billion in capital returns over three Comprehensive Capital Analysis and Review cycles (through 2020), likely being able to repurchase close to 10% of the share base for another year. Citi is also targeting $2.8 billion in cost savings and double-digit EPS growth during that same time, all of which should lead to consistently improving returns on equity. That said, Citigroup is still the lowest-performing franchise of the big four (from a return on tangible equity perspective), and we don't see that changing. However, we think Citigroup investors should be able to sleep more soundly over the next decade, and if the bank can prove it can handle a downturn, shareholders should be rewarded.In our view, Citigroup's truly global presence differentiates the bank from 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. Because of its wide geographical footprint, Citigroup 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. On the downside, it's still difficult to see how some of Citigroup's lines of businesses fit together. We don't see material value creation by having multiple retail franchises in different countries, which is the case for Citi, with material operations in the U.S., Latin America, and Asia. Unsurprisingly, the bank's global consumer franchise has underperformed peers. Overall, the bank continues to be on a path to improved returns and efficiencies, but we don't expect it to match the operating performance of its money center peers.