2015 has been an incredible year for major banks; and Citigroup has been no exception. However, there have been several issues that threaten the stability of US banks as of late. As a result, investors are starting to ask whether or not it’s still a good idea to put their money into bank investments. Many have particular concerns over Citigroup. So today, we’ll discuss the issues that threaten the stability of US Banks, unique concerns investors have with regard to Citigroup, and what we can expect to see moving forward. So, let’s get right to it…
Issues Investors Are Concerned About With Regard To US Banks
When it comes to the stability of big banks in the United States, there are a few issues that pose a threat. They include…
- Chinese Currency Devaluation – In the midst of economic struggles, Beijing made a surprise decision to devalue the yaun. However, that creates a big issue for US Banks and the US economy as a whole. The reality is that China is one of the largest economies in the world. A devalued yaun creates a bit of an issue for US exports. The reality is that as the yaun falls in value, goods and services out of the United States become more expensive for Chinese consumers; which is likely going to weigh heavy on US exports and the US economy.
- Low Oil Prices – While low oil prices may seem great when we fill our gas tanks or pay our electricity bills, they are absolutely horrible for the United States economy. Since banks have a strong correlation with the economy, low oil prices will also have an adverse affect on banks. The bottom line is that much of the United States GDP relies on the energy sector; and when oil prices are low, the energy sector feels the pain.
One Issue Is Unique To Citigroup
One of the biggest concerns that investors have with regard to Citigroup is the size of the bank and structure of the bank. These concerns all boil down to assets; and investor says that Citigroup has far too many. As a matter of fact, many look to Citi Holdings as a major issue in and of itself. The unit was created after the financial crisis of 2008 and 2009 and was designed to control loans and a combination of assets that were underperforming; which has led to massive losses in the past. So, investors are pushing Citigroup to get rid of the underperforming assets and possibly Citi Holdings as a whole.
So, What’s Next For Citigroup?
In my personal opinion, Citigroup still looks like a relatively strong stock. First and foremost, the company is working to reduce the size of the poorly performing Citi Holdings unit. As a matter of fact, the bank is currently working on closing the sale of its sub-prime lending department known as OneMain Financial. Also, aside from the issues that US banks face at the moment, there’s a big catalyst for them on the way. The Federal Reserve is expected to increase interest rates by the end of the year. Because banks make money by marking up interest rates, this is great news for Citigroup and other US banks. Higher rates from the Federal Reserve give Citigroup the opportunity to mark rates up higher; leading to a larger spread of profits. So, all in all, while Citigroup may not look perfect at the moment, it is doing a great job at restructuring and with low rates being increased soon; more and more profits are on the way.
What Do You Think?
Where do you think Citigroup is headed and why? Let us know in the comments below!