On the resumption of their coverage of Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) gave them a neutral rating, as growth in revenues and profit over the next year won’t be that impressive.
Citigroup is primarily on the defensive for now, solidifying its foundation and building up capital reserves, which are now over 10% of its balance sheet in cash.
In other words, they’re in a survival mode, not a growth mode, and that will be the case for some time to come, a reason I think the neutral rating was given to Citigroup by Goldman.
Even so, there is far more restructuring to go before Citigroup is out of the deep hole it dug itself, and it’ll be a while before they’re ready to focus on growth in any meaningful and sustainable way.
The 12-month target for Citigroup shares by Goldman was set at $3.50, a price they already have reached in the middle of January, confirming growth isn’t going to be a part of the Citigroup performance for some time.
Goldman said the major reasons for their neutral rating on Citigroup was the ongoing major stake in the company by the U.S. government, which continue to hold the share price down; the already mentioned expected weak growth related to profits over the next year; and less “provision leverage” from the stock than other pure U.S. stock plays.
Try as they may to put a somewhat positive spin on Citigroup and why the neutral rating, Citigroup remains a mess, and there are a lot of thing to take care of which will take time before they are able to position themselves for growth going forward.
The problems at the company are so deep that only time will be able to take care of them, assuming they take the right steps. The strengthening of their reserves and preparing for that is being done right, but they really need to get the government off their backs for any type of confidence in the company is realized. So until the stake in Citigroup by the U.S. government is sold, they will remain a suspect company by investors.
