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Citigroup's Energy Loan Problem

Summary

Citigroup has the largest loan exposure to energy companies among the big banks, with nearly $58 billion. Competitors have $40-$45 billion in energy loans.

CFO John Gerspach recently declined to disclose how much the company has set aside for loan losses related to energy.

Citigroup's energy loan portfolio is roughly 80% investment grade.

While the Fed's forecast of four rate hikes in 2016 was probably never realistic, the market was expecting interest rates moving up during the year. That made financials a popular pick for the top performing sector of the year. Instead, financials have turned out to be one of the worst performing sectors of the quarter dropping more than 3%. Perhaps more discouraging is the fact that the impetus that was supposed to move financial stocks higher in 2016 may not happen at all.

That's bad news for shareholders of Citigroup (NYSE:C) who've experienced a lot of pain over the past several years. Since the beginning of 2011, Citigroup shareholders have lost nearly 17% of their investment. Earnings estimates have, predictably, been lowered for most of the financial services names including Citigroup, but I feel that those estimates could need to be lowered again soon for reasons I'm about to get into.

I think investors are not expecting much good news coming out of the company's Q1 earnings report but I think the surprise could be how...


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