Citigroup (C) has hired JPMorgan executive Viswas Raghavan as become its new Head of Banking. The move is part of a corporate restructuring for Citi, which has been lagging behind its big bank rivals.
CFRA Research Director of Equity Research Ken Leon joins Yahoo Finance to discuss the reasons behind his upgrade of Citi shares and how the bank may operate moving forward.
Leon elaborates on his bullish attitude: "Citi was this octopus with very complex, confusing business units. You were never sure what was Citi at the end of the day. By streamlining into areas like a services segment, such as corporate treasury services, they're number one in the industry on that, and showing some of the more stable and growing businesses, it gives us confidence that that's a good base."
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JOSH LIPTON: Citigroup hiring Viswas Raghavan away from JP Morgan as its new head of banking. The move is part of a big corporate restructuring announced after fourth quarter earnings disappointed the Street, which included 20,000 layoffs and a loss of $1.8 billion. The new plan has some analysts upgrading the stock now, including our next guest Ken Leon, Director of Equity Research at CFRA Research.
Ken, always good to see you. So you now officially are bullish on Citi, Ken. Your target goes to 65 on this one. How come, Ken? Why is Citi in your opinion a name to own now, Ken? And why now?
KEN LEON: It's great to be here. And if you've been covering Citigroup or large bank stocks for over 10 years, you have to say is this time different with the new management and a transition to a new Citigroup. And also, the bank stocks, including Citi, had this amazing move in the fourth quarter.
So what we see is execution. The bank is really filling in some important senior management positions. They've given a lot more transparency to the Street as it relates to targets and also taking some one-time restructuring charges. This bank is going to be more efficient in the second half of this year. And then analysts, including myself, will want to know how the Citi grow with the new design bank in 2025. We think it's going to happen.
JULIE HYMAN: And just to dig into that a little bit more, Ken, because, you know, as your peer, Mike Mayo, said on the call, he was skeptical that you've been covering the bank for a long time, too. And you know that they have tried this before. Is it Jane Fraser's leadership that is sort of the thing that has made this attempt different?
KEN LEON: I think it is. But it's also, you know, Citi was this octopus with very complex confusing business units. And you were never sure what was Citi at the end of the day by streamlining into areas like a services segment such as corporate treasury services. Their number one in the industry on that and showing some of the more stable and growing businesses. It gives us confidence that that's a good base. And then of course, the areas that are more cyclical, as you know, which would be the investment banking. And today's announcement bringing a seasoned executive from JPMorgan Chase, that will be a plus as well.
So I think it's going from complexity to simplicity, having more light versus dark in terms of what the company is and showing good targets. We never saw that before. Mike and I worked together back at Lehman Brothers a long time ago. So Mike's, I think, been actually one of the most biggest challenges for Citi. And of course, I have to.
JOSH LIPTON: And Ken, let me ask you how you're thinking about valuation for this name as well. And I ask, I mean, you obviously find it still think it's attractive, Ken, I guess. I'm asking because it's had this nice recent run-up about 40% year, Ken, since early November.
KEN LEON: Yeah. I thought about that as well. And in essence, you say, well, should I wait? Maybe the overall market pulls back 10%, and you get a better entry price on Citi. But Citi, unlike its peers, which are trading at par or above net tangible book value, today is trading at about a 33% discount. So even with the target that we have of 65 or the consensus at 61, you know, you're talking about an 18% to 20% still discount to a net tangible book value in the 80s.
JULIE HYMAN: And also, Ken, I want to ask you about the Raghavan hiring in particular away from JP Morgan, which seems to be a bet on growing maybe the investment banking business. Is that-- do you think he's going to be successful in doing that? And how important is that to your thesis?
KEN LEON: We do. And I think the management approach that we're seeing here for Citi but also JP Morgan announcing unifying different parts of banking, commercial investment banking, global banking into one regime, and here we have an executive who's done it with the best bank in the world, which was JPMorgan Chase, which we have a buy. So I think it brings a lot of tenure and great skills and leadership that Citi didn't have before.
We also reduced the management layers. So the decision making around the globe is going to become more effective. And I think we should see this in the company in terms of results, particularly as we go through this year and then next year.
JULIE HYMAN: We will be watching those results. Ken Leon, thank you so much. Really appreciate it.