Citigroup (NYSE; C) is accused of being "weak" by one major research firm, citing its mounting credit concerns and lethargic profit margins which it says will plague the financial giant over the next two years.
Societe Generale reduced its rating on Citigroup shares to sell from hold Monday, citing deteriorating credit trends and increased loan loss provisions as detailed in the bank's most recent earnings report.
"Although revenues were 2% ahead of consensus,” according to one analyst, "it is more worrisome that the credit quality of North American cards deteriorated and net interest margin was flat again despite the recent Fed fund rate increase. Earnings momentum is weak."
Citigroup earnings beat Wall Street expectations last Thursday, but shares of C have fallen more than 3% since the report. Group loan loss provisions were $2 billion, 7% worse than consensus and 15% higher year-over-year, according to the analyst.
Higher loan loss provisions not only eat into earnings, but may also suggest mediocre debtors or poor credit.
The analyst cut his fiscal year 2018 earnings estimate by 0.2%, but slashed his 2019 estimate by a significant 11.1% to $6.80. He also reduced his 12-month price target to $65, which is 10% below Friday's closing price. His old price target was $70.
Citigroup's net margin also underwhelmed Societe Generale's analyst. That is the difference between what a bank pays in interest on deposits and what it earns on assets like loans.
C shares dipped nearly 36 cents to $71.75 midday Monday, within a 52-week range of $47.70 to $76.14.
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