Citigroup: Bernanke's Money Printing Winner
The broad indexes ended mixed after the Federal Reserve Open Market Committee (FOMC) announced that after central bank's current program of purchasing $45 billion in long-term U.S. Treasury Securities each month while selling an equivalent amount of short-term Treasuries is completed at the end of the year, it will continue the purchases "initially at a pace of $45 billion per month." There was no mention of the sale of short-term Treasury paper, and the Fed said that it would continue its purchases of mortgage-backed securities at the pace of $40 billion per month, for what will be a major expansion of the central bank's balance sheet.
The Fed's short-term federal funds rate has been within a target range of zero to 0.25% since the end of 2008, and the central bank previously indicated that it would hold the line on rate increases until 2015.
The FOMC on Wednesday tied the eventual increase in rates to economic benchmarks, saying that the "exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."
This was the first time the Federal Reserve tied the federal funds rate directly to the unemployment rate.
Federal Reserve chairman Ben Bernanke said later during a press conference that "clearly the Fiscal Cliff is having effects on the economy," according to an Associated Press report. Bernanke urged President Obama and Congress to quickly come up with a compromise budget agreement to avoid mandatory tax increases and budget cuts, as central bank actions "cannot offset the Fiscal Cliff. It's just too big."
The KBW Bank Index (I:BKX) rose slightly to close at 49.71, with 16 of the 24 index components showing gains.
Citi's International Appeal
Citigroup's shares have now returned 43% year-to-date, following a 44% decline during 2011.
The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for 8.1 times the consensus 2013 earnings estimate of $4.64 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.11.
Credit Suisse analyst Moshe Orenbuch on Wednesday reiterated his "Outperform" rating for Citigroup, with a $48 price target, saying that the massive expense cuts announced last week, including 84 branch closings and the elimination of 11,000 jobs, wouldn't hurt the company's strategy for growing revenue in emerging markets .
Orenbuch estimated that out of the 11,000 positions being cut by Citigroup, "about 53% or 5,825 of the total will be derived from Operations & Technology," and said that the company's estimate that its annual revenue would decline by only $300 million as a result of the cuts was "further evidence that the reductions will largely center on non-client facing positions, limiting the negative impact to Citi's top line."