Influential banking analyst Dick Bove said Citigroup's (C) stock jumping to a four-month high Tuesday reflects, in part, the growing realization that the bank is in the midst of a turnaround and a transformation to its pre-Sandy Weill days.
The bullishness on Citi, which was rescued by the U.S. government during the financial crisis, shows an “understanding that the company has in place the elements of a turnaround” and the ability to eventually produce earnings power in the “60-cent to 70-cent arena,” Bove, an analyst at Rochdale Securities, told FOX Business.com.
The U.S. government may be sharing in that view as FOX Business’s Charles Gasparino reported Tuesday that the Treasury Department is talking to Wall Street investment bankers about unloading its 27% stake in Citi as early as the spring. At the current price of $3.82 a share, a sale would give the U.S. a profit of more than $3.5 billion on its $25 billion investment in the bank.
Bove, who has a "neutral" rating on Citi, said he believes the government will unload its stake in the bank if its shares reach $4. The U.S. investment came at $3.25 a share.
“Until that stock hits the market, we’re afraid to put a 'buy' on it, said Bove, alluding to the fact a U.S. sale of roughly 7 billion shares would flood the market.
Citi wouldn’t comment on the movement of its stock, which was up 8.15% to its highest level since Dec. 14. The bank’s shares plummeted to as low as 99 cents a year ago.
Citi also received a boost from a CreditSights report that called the stock "just plain cheap" and a portfolio manager from Fairholme fund who told Fortune magazine "the price is right" in shares of Citi.
In any case, Bove was upbeat on Citi’s long-term prospects, especially considering a slew of asset sales it has made and ones that are in the pipeline.
“People fail to understand that Citigroup doesn’t exist anymore,” said Bove. By unloading most of the properties acquired under Weill, the architect of the conglomerate, Citi will look like it did “30 years ago, when it was a fairly successful company.”
In addition to Smith Barney, Citi has announced plans to sell its Japanese brokerage, German retail bank and Brazilian credit-card processing unit.
Bove said Citi isn’t reaching its earnings potential yet because the assets tied up in Citi Holdings, which holds its nonessential businesses and assets, are still racking up considerable losses. Once those holdings are unloaded, Bove said he sees Citi being able to earn 60 to 70 cents a share.
Market sentiment on Citi was also helped by Vikram Pandit’s performance last week before the Congressional Oversight Panel, which oversees the $700 billion TARP bailout, Bove said.
