Citi Climbs After Raising Profitability, Cost-Savings Targets

Citigroup Inc. climbed the most in three weeks after raising long-term forecasts for profitability and cost savings.

The lender’s shares advanced 2.8 percent to $67.98 at 10:19 a.m. in New York, the most intraday since July 3 and the best performance in the 24-company KBW Bank Index. The stock, which has gained 14 percent this year, still trades at just 0.9 percent of its per share book value, the least of the six biggest U.S. banks.

Citigroup expects return on tangible common equity, a measure of profitability, to increase to 11 percent by 2020 from an earlier forecast of about 10 percent for 2019, the New York-based bank said Tuesday during an investor day in its home city. The firm said annual efficiency savings should rise to $2.5 billion within the next three years.

“All of this supports our commitment to delivering results that look much different from today – with potential annual earnings power in the range of $20 billion within the next three years and the return of at least $20 billion in capital per year over that period,” Chief Executive Officer Michael Corbat said.

Citigroup reported second-quarter profit of $3.87 billion, or $1.28 a share, earlier this month, beating analysts’ $1.21 average estimate, as revenue from bond trading fell less than expected and investment banking brought in the most fees in seven years.

Tuesday was the bank’s first investor day since May 2008, when then-CEO Vikram Pandit announced plans to to sell $400 billion of assets — mostly those that were later put into its Citi Holdings unit — to shore up capital after the subprime mortgage market collapsed. Corbat said Tuesday that the “restructuring is over. Citi Holdings is behind us.”

“We aren’t going to surrender any of the expense discipline we have worked into the muscle memory of our firm,” he said.

The bank will try to boost its profitability by returning more capital to shareholders, essentially making the ROE figure look bigger by shrinking the denominator. Citigroup received a non-objection from the Federal Reserve last month for its capital plan, clearing the way for it to double its dividend and purchase as much as $15.6 billion of its shares.

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