{"id":70306,"date":"2023-10-08T18:56:23","date_gmt":"2023-10-08T22:56:23","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/selling-bank-of-america-stock-to-buy-citigroup\/"},"modified":"2023-10-08T18:56:27","modified_gmt":"2023-10-08T22:56:27","slug":"selling-bank-of-america-stock-to-buy-citigroup","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=70306","title":{"rendered":"Selling Bank of America Stock to Buy Citigroup"},"content":{"rendered":"
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One storied value investor recently traded out of one bank in order to increase an investment in another.<\/p>\n

Edgar Wachenheim III\u2019s Greenhaven Associates exited its
\n Bank of America
\n (ticker: BAC) investment in the third quarter, and bought more
\n Citigroup
\n stock (C). Greenhaven, which manages $7.7 billion of U.S.-traded securities, disclosed the stock trades, among others, in a form it filed with the Securities and Exchange Commission.<\/p>\n

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Bank of America stock slipped 17% in the first three quarters of 2023, a bit better than the 18% drop in the
\n SPDR S&P Bank
\n exchange-traded fund (KBE), of which Bank of America is a component. So far in the fourth quarter, shares are down 4.8%, while the ETF has dropped 1.5%.<\/p>\n

At the end of the second quarter, Bank of America was sitting on $105.8 billion of losses on a $614 billion portfolio of mostly agency mortgage securities, and that the losses likely widened in the third quarter as rates rose.<\/p>\n

Greenhaven owned more than 1.2 million Bank of America shares at the end of June, but sold them all by the end of September.<\/p>\n

\u201cWe sold our Bank of America because we wanted to own more Citigroup, but did not wish to add to our total dollar investment in financial-services companies (for sake of diversity),\u201d Wachenheim wrote in an email.<\/p>\n

Greenhaven bought 2.2 million more Citigroup shares to end September with 13.1 million shares of the bank.<\/p>\n

Citigroup stock slid 9.1% in the first nine months of 2023, and so far in the fourth quarter, shares are down 1.4%.<\/p>\n

Wachenheim, who has a three-decade record of delivering an average annual return of 19% for Greenhaven portfolios before fees, concedes Citigroup isn\u2019t best in class. \u201cThe bank\u2019s overall quality is below
\n JPMorgan Chase
\n JPMorgan Chase
\n \u2018s [JPM], and some of the other leading banks, but we strongly believe its quality is much better than its reputation,\u201d he wrote.<\/p>\n

\u201cWe estimate that 30%-35% of Citi\u2019s profits come from its \u2018payments\u2019 business (which it calls Treasury and Trade Solutions),\u201d Wachenheim added. \u201cThis is a very good service business that generates fee income and deposits\u2014and Citi is a leader in payments and enjoys an excellent reputation for quality,\u201d Wachenheim added. <\/p>\n

\u201cAn estimated another 5% of earnings comes from securities services, also a good business. And, another 5%-10% of earnings come from investment banking, where Citi remains strong in fixed income (the old Salomon Brothers). And, Citi has a smaller but well positioned wealth-management business (particularly strong in Asia) that accounts for an estimated close to 10% of profits.<\/p>\n

\u201cThus, an estimated 50%-60% of Citi\u2019s profits come from good, largely fee generating businesses. Continuing, markets (again the old Salomon Brothers) accounts for 20%-plus of earnings in a normal year\u2014and thus the traditional banking business (which is a riskier, highly competitive business) accounts for less than 30% of profits,\u201d Wachenheim wrote.<\/p>\n

\u201cOther positives are the new management under [CEO] Jane Fraser, and the steps the new management is taking to improve the bank,\u201d Wachenheim wrote.<\/p>\n

Fraser announced a broad reorganization in mid-September. \u201cWe have taken hard, consequential, tough decisions here,\u201d she said at the time. \u201cThey are not going to be universally popular within our bank. It\u2019s going to make some of our people very uncomfortable.\u201d<\/p>\n

The bank is getting rid of its split into two divisions and eliminating the international layer overseeing global regions. The heads of the five businesses Fraser has made the bank\u2019s focus will all report directly to her.<\/p>\n

Where does Wachenheim think Citigroup stock, which closed at $40.57 on Friday, could head from here? As high as $120.<\/p>\n

\u201cIf Citi earns $11-$12 per share, and if its shares sell at 10 times earnings (which is our hope), the profits from owning the shares will be very large,\u201d Wachenheim wrote. \u201cThere is the old expression that one should buy straw hats in winter. Well, Citi seems to be suffering from a blizzard of criticism over its control problems and related high costs to solve the problems. The blizzard should end\u2014and spring and summer should follow.\u201d<\/p>\n

Inside Scoop is a regular Barron\u2019s feature covering stock transactions by corporate executives and board members\u2014so-called insiders\u2014as well as large shareholders, politicians, and other prominent figures. Due to their insider status, these investors are required to disclose stock trades with the Securities and Exchange Commission or other regulatory groups.<\/em><\/p>\n

Write to Ed Lin at edward.lin@barrons.com and follow @BarronsEdLin<\/a>.<\/p>\n<\/p><\/div>\n<\/div>\n