From Rise to Slide: The Wild Ride of Citigroup Stock

If the Great Recession and the banking expression "too big to fail" had a poster child, you could put your money down on Citigroup (ticker: C) -- in fact, $20 billion worth.

That's how much the company paid back to the federal government's Troubled Asset Relief Program in 2009. It capped a nightmarish year that saw the bank's stock sink to a low of 97 cents a share on March 5 -- a 95 percent drop from just a year before.

Seven years later, Citigroup is back on its feet and trades at about $43 a share. So if you bet on Citi back at its nadir, you made a profit worthy of buying your own bank. But that's not to say Citigroup -- once the world's largest bank and now ranked No. 8 -- has left its trials behind. It was previously bailed out in the 1990s by Saudi Arabia's Prince Walid bin Talal of Saudi Arabia (when it was known as Citicorp).

And speaking of oil, Citigroup hasn't exactly left some observers gushing.

"We cannot dismiss its indifference to market's demand for more pivotal information for its high-risk energy holdings," says K.C. Ma, director of the George Investments Institute at Stetson University in DeLand, Florida. "Citigroup has repeatedly refused to provide more color about its reserve ratios for the energy portfolio. "

Some already question the bank's wager on a commodity that shows no short- or long-term signs of ending its fall. "Since oil has gone down by 75 percent over the past year, many market observers think these loans made by money center banks will at some point default, or at the minimum, require a big restructuring," says Gary Tsarsis, a clinical assistant professor at the University of Pittsburgh's Katz Graduate School of Business.

Tsarsis says Citi increased loan reserves for its energy portfolio by about $250 million in the fourth quarter last year. It's anticipated that these provisions will increase this year, which suggests an odd parallel between Citigroup's woes and investing in a beat-up, tough-to-love sector.

Add it up and Citigroup now has an indelible reputation for strapping investors onto a stock market merry-go-round run amok. Has the spinning finally stopped? Or is another round just around the bend?

"It has been a very volatile stock," says Robert R. Johnson, president and CEO of The American College of Financial Services in greater Philadelphia. "It lost 44 percent in 2011, advanced 51 percent in 2012, advanced 32 percent in 2013, rose 4 percent in 2014, and fell 4 percent in 2015."

That brings us to the new year, which has seen a drop of more than 16 percent and Wall Street pushing shares down 6.4 percent the day after a fourth-quarter report that actually beat expectations, albeit by a slim margin.

"Today, Citigroup is traded at the lowest valuation among major banks, with a price-to-book ratio of 0.7," Ma says. "JPMorgan Chase (JPM) is at 1.2, Bank of America (BAC) at 0.8, and Wells Fargo (WFC) at 1.7. You can draw your own conclusion from that."

Yet averaging out the dreadful dips and whiplash peaks over the long term, Citigroup has actually been somewhat steady. "Citigroup stock has remained basically flat over the last five years," says Sorin Roibu, senior research analyst for Brandywine Global Firm in Philadelphia. "Citigroup remains one of our favorite investments. It's among the cheapest bank in the global banking universe."

But before arriving at that point, Citigroup gave investors a fresh wave of the willies. Two scandals made headlines over the last four months; one in November detailed an alleged drug money laundering scheme through Citi's Banamex USA division. And in January, Citigroup settled a long-standing lawsuit with Allied Irish Banks, which accused it of helping a rogue currency trader.

Also in November, Standard & Poor's placed the bank's non-operating holding companies on a watch list. But Roibu says there is a reason to heave a sigh of relief: "Citigroup management has done a better-than-expected job at running off Citi Holding assets, which carry a higher capital burden."

Tsarsis points to the 28 analysts on Wall Street recommending a "buy," with five calling for a "hold" and none a "sell." Citi is also getting more selective about overseas markets, closing operations in Japan while looking at building a network of Chinese banks.

"The company has a large chunk of revenue from Asia and Latin America -- both of which are economies poised for better growth," says Jeffrey Zucker, an angel investor and co-founder of Green Lion Partners in Grand Junction, Colorado. "The company has a slow and steady recovery ahead, though I wouldn't jump in to buy right away."

But if you look before you leap, you might like what you see. "The stock is fundamentally a turnaround story," Tsarsis says. "Net income in the last quarter of 2015 was the best in nine years. That said, the company is still strategically changing their model and [CEO Michael] Corbat will continue to look for sectors where the bank can excel."

Enthusiasm among experts -- some, anyway -- has hit an upswing.

"Citigroup has made good, albeit slow, progress toward reshaping itself into a more focused financial institution," says Shannon Stemm, senior financial services analyst in the equity research department at Edward Jones in St. Louis. "It has more work to do, but we believe it is on the path toward earning higher returns while distributing more capital to shareholders."

Timothy Davis, investment executive at National Securities in Edison, New Jersey, has a "buy" on Citi shares: "Its retail unit is stable, and it's doing well with wealth management and on the lending side, thanks to widening margins."

On the other side of the banking coin, "The entire sector has become much more heavily regulated as a result of the financial crisis," says Ellen Hazen, senior vice president and portfolio manager at F.L.Putnam Investment Management Co. in Boston. "We believe this will continue to constrain banks' profitability."

Hazen says that Citigroup stock is inexpensive, compared to its history, although its price-to-book value is of concern.

"It implies that Citigroup will destroy value over time," she says. "If the current trend toward tighter financial regulation continues to constrain all banks' profitability, this may prove to be true."

A former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo writes about investment for U.S. News & World Report, and personal finance for Money Under 30 and GOBankingRates. He is based in Chicago. Connect with him at linkedin.com/in/loucarlozo.