Below some selected lines from the latest 10-Q balance sheet
The deposits with the banks are going down, because Citi is losing deposits, especially non-interest bearing deposits. I have talked about the bank deposits are walking (not a bank run, but slow bleed) to money market, CD’s, or bonds in search of higher yields. Banks are still offering very low rates.
This is not going to correct anytime soon. What this means is, very soon, may be starting next quarter, the NII growth will start reversing. Why, because the interest Citi is earning on its assets are not going to go up, but the interest they are going to pay will continue to go up.
The below table shows, what Citi has earned vs what it pays in interest. The $35 B non-interest bearing deposit loses means, Citi has to find the funds elsewhere by paying market rates, that is $1 B at 3%, $1.4B @ 4%, $1.75B 5%. Hence the tailwind of raising interest rate will soon abate, yet the higher rates will work its way into the cost of deposit, double whammy!
if you see the rates on consumer loans (mostly credit card) is already double digit, there is not much room for it to grow, same for corporate rates. OTOH, look at the rates on their debt, they have gone up by 232 basis points or 2.32%
Separately, Citi has to retire its preferred’ s or rotate them because they are resetting to SOFR (LIBOR replacement) + (unfortunately I have so much Citi common, I cannot add any citi preferred’s , for those who are interested look into it CR-J, current yield 9.5%, there is a high chance Citi might redeem them quickly but even if they take one quarter to redeem you get above market rates)
Now, I am very skeptical of “higher for longer” because US investors, regulators, politicians are so addicted to excess liquidity, cheap money. It will be difficult to change the behavior without a significant external shock. In the last 15 years we had 9 years of 1T+ deficits. So there is a higher probability of interest rates to come down, or rate cut in 2024 as soon as recession sets in !!!
So the credit loss are somewhat mitigated by AOCI gains.
From the first image, the AOCI is constant and comes around $23 per share. Given citi’s TBV is $86.9 and the current share price of $42, the share price discounts almost everything or completely de-risked!!
PS: I have pasted this as image, instead of the table, because I don’t know how to get the color. If someone knows, I would appreciate the opportunity to learn.