Citigroup Inc. (C)

Large cap US banks have been disappointing. He would prefer Canadian banks, asset management companies, and insurance companies. Both of the later two should be focused in wealth management. C-N is having a hard job getting revenue growth going. There are better places too focus.

Analysts seem to be generally positive after the earnings announcement. They have been lagging because of not passing the stress test. This stock has not recovered nearly as well as many of the others. He just took an initial position of ZUB-T. As we correct over the next number of months he will accumulate.

(Top Pick Jul 15/13, Down 6.71%) Trading below EBV -3. The market does not believe the balance sheet. He needs to see the line go above EBV -3 for him to take notice of it again. They are still struggling.

These big banks are trading at extreme discounts. 0.7 price to book, so there is definitely a valuation discount. Likes it longer term, although there is some headwinds short term. As economy improves and loan losses move down he thinks the large banks will do well.

US banks are very highly correlated to the US 10 year yield. We have seen bond rates come down year to date, so bank stocks have come down. On top of that, this is a pretty big investment bank as well, and volatility levels are very low. Investment banks make money when volatility is very high. This will likely improve over the next several years which will improve profitability. Increased rates will also benefit. Feels the banks all screen very cheaply, and will be good performers over the next couple of years. (See Top Picks.)

(A Top Pick May 31/13. Down 9.04%.) Sold his holdings in January.

Had a big write-down. A lot of this was non-cash. Can’t raise the dividend and can’t buy back stock. The better guys stocks are doing nothing so the whole sector has been tossed into the bargain basement. Mortgage and loan growth is weaker than expected and trading revenues are nonexistent.

Thinks there is more upside than JP-N. There are lots of easy ways to fix up the earnings. Failed a Fed test this morning so can’t institute a dividend or do share buy backs for a while, but that creates opportunities. They could dispose of assets that aren’t doing anything.

Trading below BV. There are reasons why the US banks are not recovering the way most people thought they would. The difficulty is that the regulators are now in the business and it is difficult to know what they are going to be allowed to do and how they are going to be able to deploy their capital. (See Top Picks.)

(Top Pick April 18’13, Up 6.03%) They passed the stress test, but can’t hand out big dividends or do big buybacks. They have excess capital that they can’t return now, but at some point they can. She uses this as an opportunity to buy into the stock. It’s a pretty good value here.

Sector is beaten down. Poster child during financial crisis. It has been beaten down the most in the sector. Would look to build his position further.

Citigroup (C-N) or Bank of America (BAC-N)? Doesn’t own either one, but if she had to choose, it would be Bank of America. Of the 30 banks checked by the federal government, 5 were rejected and Citigroup was one of them. This bank pays you a dividend of $.04 per year and they can’t increase that nor can they buy back shares. She owns Wells Fargo (WFC-N) which has a yield of 2.4% and got approval to increase their dividend by 17%, and as well, increase their stock purchase plan for this year.

Failed the stress test, but the company is not worse off, it is just not returning capital to you today by raising their dividend. As a long-term investor, he would be buying this today because nothing has changed. It is going to benefit from an improving US economy, improving auto sales, home sales, etc.

(A Top Pick May 31/13. Down 4.12%.) The good news is that this continues to hang around here. We will get to hear what the fed has to say after the market closes tonight. Model price is $62, 24% above.

Failed the stress test. Gets a little bit worried that there is some lack of clarity in how the organization is executing. This has not been one of his favourite stocks. You have to remember that this is not a bank that is spread out through the US; it really is a bank in New York state. Has a great overseas franchise.