Citigroup Inc. (C)

Came out with earnings today and they missed way down by weaker than expected mortgage banking, weaker than expected fixed income, net interest margins moved up, but only by 7 basis points. Their basil 3 Tier 1 capital was the highest it’s been at 10.5. Next, this is a stumble in an unfolding positive story. If it got down into the $51 area, this is a name, he would be accumulating.

Has a 17%-18% upside to his model price of $63.51. The market is recognizing the value of this and Bank of America (BAC-N) balance sheets. This is very positive for the markets and for the US. These stocks are at the very beginning of a 3 to 5 year run.

What differences are there in the role that a US bank like this might play in a Canadian investor’s portfolio from a role that a Canadian bank would play? Under what conditions ought one to own one or more Canadian banks along with this bank? Looking at both groups on a valuation basis, US banks took a much bigger hit in the crisis. We are now in a recovery mode and the US maybe recovering a bit more than the Canadian banks. Just from a valuation standpoint, there is certainly room for the US financial exposure. She owns both Canadian and US banks and sees good opportunity.

Things are better for US banks then they were. One of the reasons is because of the recovery in house prices. US banks all have tremendous loan reserves for mortgages that were underwater, i.e., the mortgage was greater than the value of the underlying real estate. As the price of real estate comes back, those mortgages bob up to the surface and the banks can reverse some of those loan losses. That is positive for earnings. This bank is not his favourite.

Lots of potential in US banks. Trading at around 75-80 times tangible book value, which historically is quite low. The reason is, they are really making their money on cost-cutting right now, loan growth is anaemic and partly because of slower economic growth. But also partly because the system right now is encouraging them to covet and husband capital. Deposits are fairly brisk but loan growth is poor, which means they have more money on the books and they have to put it somewhere so they put it in the bond market. Not a normalized situation, but he thinks it will be. As the economy starts to recover, he expects to become an owner of the banks in greater percentages. (See Top Picks.)

These bank stocks are cheap on a price to book valuation. This bank has had horrible, horrible assets sitting in a bad bank situation, but as the economy improves, these assets start to move more in value and they are unloading them. The problem is, it is not paying a dividend and is not allowed to buy back stocks. He prefers J.P. Morgan (JPM-N).

Fresh management teams since the downturn and there has been time for healing their balance sheets. Not perfect, but they are certainly better and really cheap. Trading at less than BV. The steep yield curve and the housing market are a great way to play a recovery in the US economy and in the housing market.

Profitability scenario looks good to him. Cheap compared to Canadian banks. Almost all retail banking now. Almost 65% outside of US now. Very high tier one capital. With repeated good quarters the multiple should go up.

Feels pretty comfortable with all of the US financials. Very much in the sweet spot right now because they will fare better if rates go up, which they eventually will. Still trading at pretty good valuations. Prefers Goldman Sachs (GS-N) because we still haven’t seen a lot of M&A activity. That is a shoe that is yet to fall and will benefit this bank more than the others.

Doesn’t own any US banks as he likes the dividend tax credit in the Canadian banks. This one is the cheapest of the US banks. If you believe, as he does, that the US economy is going to move up gradually, he thinks there is room for growth in the US banks.

Currently trading at 90% of BV. More geared to the faster growing international markets. As well as the US is doing on a relative basis, the international markets are growing faster. Have a lot of efficiency improvements and a lot of exposure to US housing. Very high capital ratio at 10.4. Looking for high returns through buybacks and dividends. He has a target of $65 in one year, and ultimately, maybe even $100.

Probably one of the most beaten up banks. Trading at roughly 10.5-11 times earnings, versus a long-term multiple of 15. Roughly 65% retail. Most of its bank branches and earnings are coming from other countries, so this is a play on a global pick up. Ultimately, you are looking at a story that is re-rated and this tends to move very early in the cycle. Thinks we are in the early days of a big expansion in the stock market and the business cycle overall, so he is bullish on banks.

Likes all the US financials at this point. Doing very well but is more attracted in the near-term to some of the others. An absolute bargain.

Likes the money centered banks. Basically trading at 9X earnings, around 80% of BV, earnings are growing again. Everyone was worried about the slowdown in refinancing in the mortgage market in the US and he thinks the housing market is recovering. This one has better international diversification assets than any of the other money centered banks. Yield of 0.08%.

Has been a great stock to own. Going forward she looks at price to book value and it is trading below tangible book. There are some positives going on. A lot of the book value is tied to the housing market that seems to be improving.