President-elect Donald Trump’s potential tariffs may result in more business for the bank as clients re-evaluate trading partners and supply chains.
Citigroup Inc.’s stock may benefit from the incoming Trump administration’s pledge to increase tariffs, a Wall Street analyst said in an upgrade.
While the tariffs pose a risk of trade turmoil for banks such as Citi
https://www.marketwatch.com/investing/stock/c?mod=article_chiclet
that operate globally, Trump’s moves may end up being a positive for the bank, said Keefe, Bruyette & Woods analyst David Konrad.
“Pledges and outcomes usually differ, as we believe part of [Trump’s] stance is to renegotiate existing trade deals,” Konrad wrote in a research note. “We also believe this is an opportunity for new business for Citi as countries re-evaluate trade partners and corporations redirect supply chains.”
Konrad upgraded Citigroup’s stock to outperform, from market perform, due partly to its attractive valuation relative to its peers, he said.
During the first Trump term, Citigroup’s Treasury and Trade Solutions unit booked annual revenue growth of 9.4%, which ranks as its strongest-ever period and well ahead of its 10-year average revenue growth of 6.1%, Konrad said. Deposit growth was also “very strong” during this period, he noted.
If rates and foreign-exchange volatility take place during Trump’s second term, elevated trading in fixed income may take up the slack for any revenue shortfalls in other areas, he said. Citi’s move to reduce its exposure by selling overseas retail-banking units may also soften the blow of any trade upheaval, he added.
Overall, Citigroup’s stock offers a “very compelling” valuations, including a 32% discount to peers on its estimated 2026 price-to-earnings ratio, Konrad wrote — adding that it’s also trading at a 6% discount to its 10-year historical average for total book value.
“Although the stock has been historically cheap, we believe near-term catalysts make the stock more attractive,” he said.
Those potential tailwinds for the stock include a possible rise in capital-markets revenue, as Wall Street dealmaking such as fixed-income trading and investment banking picks up after the uncertainty of the election.
The much-anticipated rollback of banks’ capital requirements under the so-called Basel III endgame would also free up capital for stock buybacks at Citi, Konrad said.
The analyst said he analyzed Citi under a “blue sky” scenario of a positive environment for the bank sector and came away with the conclusion that its stock offers a 31% earnings upside and a 41% valuation upside.
Citi’s stock has risen 12.2% in the past month, while the S&P 500
SPX
is up by 4.6%. So far in 2024, Citigroup’s stock has gained 38.8%, while the S&P 500 has risen 26.8%.
Separately, Konrad also upgraded State Street Corp.’s stock
STT
to outperform from market perform.
“STT has market-sensitive revenues tied to higher custody and asset-management revenues, which should be a tailwind over the next few years,” he wrote.
State Street’s stock is up 5.2% in the past month and up 26.2% so far in 2024.
Along with State Street and Citi, KBW now has outperform ratings on Bank of America Corp.
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