5 'Noisy' Banks and What They Really Earned

Written by: Philip van Doorn 04/30/12 - 6:00 AM EDT

Tickers in this article: JPM C BAC ZION COF

Citigroup (C) reported first-quarter earnings of $2.9 billion, or 95 cents a share, however, excluding credit and debit valuation adjustments of "a negative $1.3 billion during the first quarter, resulting from the tightening of Citi's credit spreads," and also excluding "a net gain of $477 million from minority investments," Citigroup's operating earnings were $3.4 billion, or $1.11 a share.

Excluding the same items, Citigroup's first-quarter revenue totaled $20.2 billion, increasing 17% sequentially, mainly from the recovery in trading revenue, and 1% year-over-year.

KBW analyst David Konrad rates Citigroup "Market Perform," with a price target of $42, an said on April 16 after Citi reported its earnings that "results were strong as better-than-expected revenues and expense control drove positive operating leverage," and that "although the revenue beat was largely driven by market-sensitive items, we believe this rebound in trading results is key in determining the long-term earnings power of C."

For the rest of the year, Konrad thinks that Citigroup's trading revenue decline from a seasonally-strong first quarter, and also expects "mortgage banking and ongoing levels of reserve release to be modest headwinds on revenues."

Citigroup's shares closed at $33.50 Friday, trading for just two third of their reported March 31 tangible book value of $50.90, and for eight times the consensus 2013 EPS estimate of $4.17, however, Konrad says "the consolidated earnings multiple is not inexpensive at almost 11.3x 2012 estimates, excluding reserve release."

Then again, excluding the results from Citi Holdings -- the repository for the assets being wound down by Citigroup as part of CEO Vikram Pandit's good bank/bad bank strategy to trim noncore assets and shore up capital -- Konrad said that the P/E "multiple drops to below 7.0x."

"Although this metric sets up a good long-term thesis for Citi, "said Konrad," potential softer trading over the summer and delays in capital deployment leave limited catalysts for C over the near term, in our view."

So there you have it. Your decision on whether or not to take the plunge with Citigroup must reflect whether or not you are truly a long-term investor, with a horizon of several years.