Citi Slides Unhappily into the Close; Where?s the Upside?

[Stocks-to-Watch]

Investors got progressively more pessimistic about Citigroup (C) earnings as the day wore on Tuesday, and the stock ended the day down 8.2%, cutting a hefty chunk out of the stock’s 17% year-to-date gain through Friday. Citi earnings missed analysts’ expectations, although it was somewhat unclear how much of Citi’s miss was related to one-time events.

It’s clear that investors were looking for more from the company, even as Citi showed global loan growth and more progress at reducing its troubled loans and assets.

Despite the progress, the company’s balance sheet improvement may have been underwhelming. Nonperforming loans fell 7%, the smallest drop since the fourth quarter of 2009. And the stocks’ most likely catalyst, a dividend increase, appears no closer to fruition than it did before the release. management could only say that it still plans to return capital to shareholders* this year, and its awaiting word from the Fed about whether it will be allowed to do so.

Citi also reported that expenses rose 6.9%, in part because of a weaker dollar and higher legal expenses. Core operating expenses rose by about 2.1%, which may have also disappointed investors hoping to see more expense discipline from the company. Citi CEO Vikram Pandit said on the company’s earnings call that he expects expenses to begin to dip.

“I believe these increases in expense levels are behind us. We have a robust reengineering program and our goal is to self-fund new investments going forward. As a result of this and other actions, we currently expect to reduce our expenses by $2.5 billion to $3 billion in 2012 compared to the reported full year 2011 level, of course, excluding changes in FX or unanticipated legal costs or significant one-timers.”

Investors will continue looking for a dividend increase, and any movement toward that milestone is likely to life the stock. Until then, the stock could trade flat or down — or as Nomura analysts wrote, “the stock will likely take a breather.”



Original Article Source by Barrons.com

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