PRESENTATION SLIDE-2a - FINS3630 FINS3630 Group Project...

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Unformatted text preview: FINS3630 FINS3630 Group Project Group Members: JJ, Mark, Wendy, Long and Matthew Presentation Overview Introduction of Citigroup Discussion Profitability Analysis Risk Analysis Equity valuation o Conclusion Citigroup Segments Citicorp Regional Consumer Banking Citi Holdings Corporate / Other Institutional Clients Group •Citigroup is an American multinational financial services holding company • Headquartered in New York Stock price performance Ratio Decomposition LEVEL 1 ROE LEVEL 2 ROA EM LEVEL 3 PM AU LEVEL 4 interest expense ratio noninterest expense ratio provision for loan loss ratio tax ratio interest income/asset non interest income/asset 31/03/2011 31/03/2010 31/12/2010 31/12/2009 31/12/2008 1.75% 2.92% 6.49% -1.05% -19.55% 0.15% 11.31 0.22% 13.29 0.53% 12.24 -0.08% 13.15 -1.28% 15.27 11.11% 1.40% 13.89% 1.58% 9.53% 5.56% -1.47% 5.45% -25.64% 4.99% 6.28% 47.42% 5.36% 37.31% 6.44% 44.12% 5.95% 46.23% 6.96% 67.05% 10.74% 26.24% 22.66% 35.40% 31.19% 4.84% 18.26% 3.67% 9.72% 2.48% 25.17% -5.46% -106.91% -18.79% 63.28% 8.57% 4.99% 9.72% -44.36% 0.59% FIRST FIRST QUARTER 2011 RESULTS CITI GROUP in millions of dollars 1Q'11 4Q'10 1Q'10 Total Revenues $19,726 $18,371 $25,421 Expenses $12,326 $12,471 $11,518 Net Income $2,999 $1,309 $4,428 Tier 1 Common Ratio 11.3% 10.8% 9.1% 31/3/2011 31/3/2010 Return on Equity 1.75% 2.92% Return on Assets 0.15% 0.22% Equity Multiplier 11.384 13.325 What are the main drivers of the bank’s profit? Short term Drivers: Fluctuations in net interest margins _Net interest margin fell from 3.34% in the first quarter of 2010, to 2.84%. Release of loan loss reserves _Released $3.3 billion of net loan loss reserves compared to $53 million in the first quarter 2010. B. Long term Drivers Cost-cutting strategy _Continued to divest non-core businesses _Citigroup Jobs cutting plan A. How How change in provisions for loan losses is contributing to the change in revenue? Purpose of provision for loan losses: guarantee a bank's solvency and capitalization if and when the defaults occur. occur. Citigroup benefited from a lower provision for loan losses in the quarter ending March 31, 2011. Change in provisions for loan losses 38760000 25194000 8366000 2899000 Q1/2009 Q1/2010 Q4/2010 Q1/2011 Allowance Allowance for Loans Losses 31/3/2011 Provision (% Total Loans & Leases) Net Charge Off (% Total Loans and Leases) 31/3/2010 0.44% 1.11% 1.07% 2.63% Citigroup has underestimated the percentage of loans which would be uncollectable Net Income st 1 quarter revenues Net income of $3.0b in the first quarter Revenue of $19.7b in this quarter was 22% down from the prior year period This decline was largely attributable to meagre trading and domestic banking results st 1 quarter expenses Non-interest expense ratio rose from 37.31% a year ago to 47.42% Falling US dollars increased overseas costs Higher legal costs were incurred to resolve flawed sales of mortgage securities Sustainability of current growth Quarterly profit was in the black due to improvements in credit conditions Net credit losses declined for the 7th consecutive quarter Provision for loan losses dropped to 10.74% Most significantly, $3.3b was released from loan loss reserves Thus, profit growth was a one-off Investment in emerging markets 62% of revenues and 72% of net income produced in the first quarter came from overseas Consumer loan demand increased 15% in Asia-Pacific and Latin American regions However, inflationary pressures curbed growth in these regions during this quarter Domestic Domestic and foreign deposit Deposit (2008-2010) 600000000 500000000 400000000 300000000 Domestic Deposit Foreign Deposit 200000000 100000000 0 12/31/2008 12/31/2009 12/31/2010 03/31/2011 Citigroup’s net loan and lease had increase 9.32% in 2010 correspond to the1.72% increase in domestic deposit and foreign loan had also increased 5.30% in 2010 and 7.27% in 2011 q1 with respect to 1.59% and 3.78% in 2010 and 2011 q1 respectively. RISK RISK 1) Loan portfolio risk: Is its loan portfolio well diversified? Is Citi over exposed to credit risk in a particular sectors? Loan mix,percentage of gross laon and leases 0.0279 0.0018 Real estate loan 0.1235 Individual loan 0.35 Commercial and industrail loans 0.175 Other loan and leases Loans to depository institutions and other bank acceptances 0.32 Agricultural loans 2) Credit risk: (a) the percentage of past due or nonaccrual assets and the time trend •Loans to Individuals and other loans and leases were 32.33% 32.33% and 12.35% •Non accrual loans and leases reduce by USD13M from 2010. 2) risk: 2) Credit risk: (b) how much securitized assets are still on Citigroup’s book Net decrease USD16.06Billion (including loan assets) Assets consist of residential mortgages, corporate loans, loans, and retail loans such as credit card debt. 3) Off-balance3) Off-balance-sheet risk: How large is Citi’s exposures to off-balance-sheet risk? Percentage of total asset 80 Percentage of total asset 6 70 5 60 4 50 3 40 2 30 1 20 0 Citigroup Peer group Standby letter of Securities lent credit 10 0 Loan Credit commitment derivatives Commercial and similar letter of credit 4) 4) Liquidity and funding risk: Is Citi well prepared for deterioration in credit markets? Does Citi have enough liquidity to cope with another liquidity crisis? As a percentage of total assets 60.00% 50.00% 40.00% 2009 2010 2011 30.00% 20.00% 10.00% 0.00% Citigroup Peer group 4) 4) Liquidity and funding risk: Is Citi well prepared for deterioration in credit markets? Does Citi have enough liquidity to cope with another liquidity crisis? Short Term Investment as a percentage of total assets 30.00% 25.00% 20.00% 2009 15.00% 2010 2011 10.00% 5.00% 0.00% Citigroup Peer group 5) Foreign Activities The global distribution network of Citigroup is often cited he as strength of Citigroup by many analysts and Citigroup’s Asian and emerging market business has been a bright spot for Citigroup against the background of global financial crisis. Hence, it would be interesting to look at the growth in Citigroup’s foreign activities and the ratio of foreign assets and total assets. Banking revenue in Southeast Asia last year totalled $US57 million, up from $US49m in 2009. foreign exchange contracts accumulating 295.95% of its total assets. 5) Foreign Activities The global distribution network of Citigroup is often cited as he strength of Citigroup by many analysts and Citigroup’s Asian and emerging market business has been a bright spot for Citigroup against the background of global financial crisis. Hence, it would be interesting to look at the growth in Citigroup’s foreign activities and the ratio of foreign assets and total assets. 1.97% CitiGroup Peers 28.83% 6) 6) Capital adequacy Does Citi have a solid capital base? Does Citi have difficulty in meeting the capital requirement of Basel III? Equity to asset ratio 12.00% 10.00% 8.00% 2009 2010 2011 6.00% 4.00% 2.00% 0.00% Citigroup Peer group 6) Capital 6) Capital adequacy Does Citi have a solid capital base? Does Citi have difficulty in meeting the capital requirement of Basel III? Tier 1 capital to risk weighted asset ratio 13.50% 13.00% 12.50% Basel II requirement: 4% 12.00% 2009 2010 2011 11.50% 11.00% 10.50% 10.00% Citigroup Peer group >6%: well capitalised Basel III requirement: 6% 6) 6) Capital adequacy Does Citi have a solid capital base? Does Citi have difficulty in meeting the capital requirement of Basel III? Common equity to risk weighted assets 12.00% 10.00% 8.00% 2009 6.00% Basel II requirement: 2% 2010 2011 4.00% 2.00% 0.00% Citigroup Peer group Basel III requirement:4% Equity Valuation Profitability Ratios Net Interest Revenue/Asset 2008 2009 2010 2010 Q1 2011 Q1 2.52% 2.68% 2.80% 2.96% 2.58% Net Income/Asset -1.28% -0.08% 0.53% 0.88% 0.62% Net Operating Income/Asset -1.49% -0.06% 0.53% 0.84% 0.61% 1.56% 2.03% 1.26% 1.66% 0.60% 4.12% 5.72% 3.44% 4.39% 1.74% 67.05% 46.23% 44.12% 37.31% 47.42% 7.31% 8.20% 8.54% 7.56% 8.78% -11.39% -3.92% 2.77% 9.86% -2.72% Management Efficiency Yearly Provisions Expense/Avg Assets Yearly Provisions Expense/Avg Ins&Is Cost Ratio Efficiency Ratio Equity Coverage Ratio Equity Capital/Total Asset Growth Asset Growth Rate ...
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