Citigroup Suffers "Bad Bank" Discount

NEW YORK (TheStreet) -- Several analysts raised their earnings estimates and price targets on Citigroup(C) after the bank showed an improvement in operational performance across its businesses in the first quarter.

Despite a series of special items that muddled the profit picture, Citigroup managed to impress analysts with its strong recovery in trading revenues, continued loan growth and tighter control on expenses across businesses.

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Citigroup also disclosed for the first time a proforma Basel III Tier I capital ratio of 7.2%. It also said it may consider re-submitting a capital request plan in June, although it seems unlikely the bank will be able to make any buybacks before the fourth quarter of 2012.

Morgan Stanley analyst Betsy Graseck increased her price target on the stock by 7% to $45 though she maintained an equal weight rating. She also raised estimates for 2012 and 2013 by 17% and 11% respectively. The analyst sees "consistent positive operating leverage" as "critical" and expects capital returns to begin in earnest only in 2013.

"Citi generated solid results in 1Q11, and while management's tone on the conf call was conservative, we believe Citi's results should continue to show momentum," UBS analyst Brennan Hawken said in a report. The analyst raised his 2012 estimate by 5 cents to $4.05 on lower operating expenses and higher trading revenue. He also gave credit to Citis progress in risk management including winding down Citi Holdings.

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Despite the positive analyst reactions, the median price targets of various analysts for Citigroup was $43.75, according to Thomson Reuters which still places it at a discount to tangible book value. Citi Holdings, which houses non-core assets that the bank intends to wind down or sell, appears to be what's holding down Citigroup's valuations.