Citigroup idea was a winner

(MENAFN- Khaleej Times) My bullishness on Citigroup at 40 has been vindicated as the shares of America's third-largest global money centre bank have risen to 46 (or 15 per cent in two weeks!) as I write. First-quarter 2016 profits fell 27 per cent due to dismal fixed-income trading and investment banking revenues. Yet the Street expected a far worse net profit than the $3.5 billion or $1.10 a share Citi reported down from $1.51 a share a year ago. Since Wall Street consensus was a mere $1.03 Citigroup beat its whisper number and the Basel Tier One is 12.3 per cent so more buybacks after the next Fed CCAR is certain.

Amid a savage bear market in bank shares the proverbial big picture keeps my obsessive tape watching (actually the green phosphorescent flicker of my Bloomberg screen when I type "C equity GO"!) in perspective. Citi reported its largest annual net profit and lowest annual expenses in a decade. Citi has finally passed all the Fed stress tests and bought down Citi Holdings "bad bank" to a mere $100 billion in assets. Citi's living will alone got the regulator blessing possibly because of its near death nightmares in 1991 and 2008. Citi has finally abandoned the fiction that emerging markets banking was the lodestar of virtue after it was stung badly by the Banamex fraud. Above all Citi embraced Big Red as the hero of its Middle East private bank and Big Red embraced Citi leaving Morgan Stanley and Singapore Inc rudderless and in tears. All these were key metrics for me as I watched Citi sink to $35 and learnt once again that the big money is made when things go from Godawful to just plain awful. Citigroup proved this existential truism in April 2016.

Yet are things really "plain awful" in international banking now? Yes sir I can boogie. The Federal Reserve is frozen in fear with its yo-yo monetary policy. Italia is on the brink of financial meltdown. Citi's Brazil business is a disaster the reason Latin American Global Consumer Bank revenues fell 28 per cent. For those who owned Citi under Chuck Prince and Sandy Weill this bank has gone to "money heaven" forever (as long as the music plays we keep dancing dudes even if we hemorrhage $50 billion shareholder cash!) this is a $500 stock. "The Citi Never Sleeps" the ads boasted in 2007. Sure enough its investors and regulators never slept either. I would bank profits on Citi now as I see the darkness descend on the global money souks as Al Ponzi Khan dances his last dance with his bunnies and Bentleys and other people's money!

My thoughts are no longer on equities but crude oil as the world could change in Doha on Sunday. It is a bad sign that Iran Oil Minister Bijan Zangeneh did not attend the Doha conclave. This is the reason Brent futures dropped three per cent as I write my latest black gold cri de coeur. Saudi Arabia is no longer willing to act as the swing producer of the Opec so it is impossible to get a credible output cut (not freeze) with sanctions for non-compliance. This means the wet barrel market will remain in glut and limit up on floating storage. This means the cognoscenti in West Texas/Brent will position for a fall of Humpty Dumpty dimensions unless the kingdom does another policy U-turn as it did in Vienna on November 2014. An output freeze will simply not change the global supply/demand equation as even the IEA and the Kremlin admits. Saudi Arabia's March production was 10.2 million barrels a day peak pumping. Russians output is at a post Soviet high at 10.9 mbd as Putin needs every rouble he can get to wage wars in Syria and Ukraine.

I am paid to think and (position/profit!) from the unthinkable. If Saudi Arabia and Russia negotiate a deal a 10 per cent move needs credible sanctions for non-compliance that only the kingdom can impose as the world's largest low-cost producer with most of its spare capacity. No deal and oil prices will free fall to $30 in the next three months. High stakes game theory mathematics in energy's global game of chicken. As Daniel Yergin taught us The Prize is the secret history of the world's epic quest for money and power!

X