Citigroup (C) is one of the world’s largest banks, with over $2.4 trillion in assets. Its weak compliance and risk-management culture led to Citi’s disastrous and humiliating experience in the 2009 global financial crisis, which required an enormous government bailout recalls Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

The successor CEO, Michael Corbat, navigated the bank through the post-crisis period to a position of reasonable stability. Unfinished, though, is the project to restore Citi to a highly profitable banking company, which is the task of relatively new CEO Jane Fraser.

Fraser, an impressive 17-year company veteran with leadership and turnaround experience in nearly every segment of the bank (she is light in investment banking but has experience as an investment banker), is focusing on Cit’s strengths in Wealth and Commercial Banking, as well as credit cards, while offloading low-value operations. Her task also includes cleaning up regulatory and compliance issues, upgrading the tech infrastructure, tightening and focusing its culture, and cutting expenses.

To an extent perhaps unmatched in the industry, Citi has operations across the globe. Global reach works best in capital markets activities like commercial and investment banking (Citi is performing well in these) but tends not to work well in local market activities like consumer banking (where Citi is struggling).

Fraser has offloaded 13 consumer units including those in Australia and South Korea with its business in Mexico in active negotiations. These divestitures should boost capital levels while reducing expenses. Wealth management, which has both global and local features, is a good business for Citi, where it is well-positioned in several attractive regions including Asia.

As it sits today, Citi is in reasonably strong condition. Capital (at 12.2% CET1 ratio) is sturdy and comparable to its major peers. Credit quality is healthy as are its credit reserves. Like all major banks, Citi is struggling with slow loan growth and narrow net interest margins.

Trading at 55% of tangible book value (compared to Wells Fargo at 120% and Bank of America at 150%) and 6.5x estimated 2023 earnings, Citi shares are among the cheapest in the banking sector — a major attraction as expectations are low. As the bank grinds along with its turnaround, the valuation should improve. Investors enjoy a 4.7% dividend yield.

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