Why Citigroup Stock Lost 16% Last Month

What happened Shares of Citigroup (NYSE:C) were falling last month as the stock got tripped up by a report in The Wall Street Journal that regulators were preparing to censure the bank over a failure to improve its risk management. The news added to the company’s challenges during a year when it’s been hit […]

What happened

Shares of Citigroup (NYSE:C) were falling last month as the stock got tripped up by a report in The Wall Street Journal that regulators were preparing to censure the bank over a failure to improve its risk management. The news added to the company’s challenges during a year when it’s been hit hard by the coronavirus pandemic.

According to data from S&P Global Market Intelligence, the stock finished September down 16%. As you can see from the chart below, most of those losses came during a two-day stretch in the middle of the month following the report in the Journal.

C Chart

C data by YCharts

So what

Prior to the stock’s slide, the biggest monthly news out of Citigroup came on Sept. 10, when the bank announced that CEO Michael Corbat would step aside early next year. His replacement, Jane Fraser, will be the first woman to become CEO of a major bank . 

Citigroup CEO Michael Corbat.

Citigroup CEO Michael Corbat. Image source: Citigroup

At the beginning of the following week, the company gave updated third-quarter guidance at an industry conference. It said revenue growth would come at high single digits — much better than analyst expectations. It also said that loan loss reserves would be significantly lower than in the first half of the year.

That good news was overshadowed by the Journal report, which said that the Federal Reserve and Office of the Comptroller of the Currency were expected to reprimand the bank. The rebuke was expected to come in the form of a consent order over weak risk management controls, as exemplified by the bank’s recent accidental $900 million payment to Revlon‘s creditors. It was unclear if the citation would include fines.

Later in the month, the stock fell further on reports that the Federal Reserve would maintain its restrictions on dividend increases and share buybacks for the major banks, which it did at the end of the month.

Now what

Citi will have a chance to turn things around when it reports third-quarter earnings next week on Oct. 13. Analysts forecast revenue falling 7.7% to $17.1 billion, despite the company’s revenue guidance. Analysts also see earnings per share shrinking from $2.07 a year ago to $0.84. 

Citigroup is down 44% this year, and given the uncertainty around the coronavirus pandemic and the low interest rate environment for the next few weeks, it will be difficult for the stock to recoup those losses.

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