Citigroup Inc. held its annual investor day this week with a large press by CEO Jane Fraser to redefine the valuation of the largest segment, services. Apparently it worked, because Morgan Stanley Analysts today estimated the value of Citi’s services segment, which includes many of the payment channels that connect global finance, at about $56 billion ($30 per share) — nearly half the bank’s total value. Citi’s market capitalization currently stands at $115.8 billion.
The segment, which includes what Citi calls treasury and trading solutions such as liquidity management, as well as securities services such as custody and fund services, processes about $5 trillion in transactions daily for clients, including Microsoft, WalmartAnd Stripes according to the Morgan Stanley report.
“The bank views services as its crown jewel at the heart of Citi’s global network,” wrote report authors and equity analysts Betsy L. Graseck and Ryan Kenny.
The report’s authors found that the return on average tangible common stockholders’ equity (ROTCE) in Citi’s services segment – a metric that divides annualized net income by average monthly tangible common stockholders’ equity – has ranged from 21 to 23 percent over the past three quarters, the highest of any Citi segment.
Citi believes that continued volume growth in this segment can offset the headwinds from lower interest rates. “In particular,” say the report’s authors, “Citi underscored the expectation of continued strength in cross-border transactions, US dollar clearing volumes, commercial card volumes and trade credit.”
Despite the higher-than-expected returns, Citi maintained its ROTCE target of about 11 to 12 percent through 2026, with annual revenue growth of 4 to 5 percent.
Earlier this week, Citi hosted a full day of service-only presentations, familiarizing Wall Street with what the Wall Street Journal described as a “collection of features that most large companies could not do without” and that could increase the value of Citi stock. While Citi stock has risen 14% this year to $60.62, analysts at Oppenheimer and Wells Fargo have rated the stock as Buy with a price target of $86.00 and $85.00 respectively.
Last week, Citi’s acting CIO told Assets He expects a quieter-than-expected economy to help mitigate the impact of the rapid introduction of artificial intelligence on the labor market.