ValueAct’s Morfit says Citigroup positioned for growth, sees higher share price

The Citigroup Inc logo is seen at the SIBOS banking and financial conference in Toronto
FILE PHOTO: The Citigroup Inc (Citi) logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

October 8, 2020

By Svea Herbst-Bayliss

BOSTON (Reuters) – ValueAct Capital Management, a long-time investor in Citigroup Inc, threw its weight behind the third largest U.S. bank in an unusually public way on Thursday by saying its share price could double in the near term.

“The upside is very compelling,” Mason Morfit, chief executive officer and chief investment officer of the $12 billion investment firm said at the 13D Monitor Investor Summit on Thursday. He said the bank is inexpensive now and well positioned for growth.

Citigroup stock has languished compared to its peers as the bank struggled for years to convince Wall Street that it could reliably hit its financial targets. Shares have fallen 44% so far this year while the KBW Bank index has fallen 30%.

Morfit spoke one day after U.S. banking regulators fined Citi $400 million and ordered it to repair its risk-management systems.

The government’s rebuke was largely seen to have accelerated Citi CEO Michael Corbat’s decision to retire early next year and hand the reins to Citi President Jane Fraser.

Morfit supported Fraser’s appointment and said the firm, which has owned Citi shares since early 2018, was looking forward to working with her.

Citi’s institutional clients group is a star business, Morfit said, saying that it alone is worth at least $70 to $110 per share, which is double what the stock is trading today.

He forecast this part of the business can continue to grow earnings per share over the next decade.

Citi’s stock price, currently trading at $44.91, could jump to $80 in the near term and rise more to hit $150 over time, he said.

Morfit called Citi an “irreplicable platform” and said it is well positioned for long-term growth because it is stable, safe and steadily taking share. As its core platform “chugs along,” Morfit said the payoff will come as the company’s return on tangible common equity can reach 15% to 16%.

ValueAct, which recently saw founder Jeff Ubben depart, is an activist investor that likes to work behind the scenes over years by advising senior management instead of waging noisy proxy fights. “We try to transform companies from underachievers to overachievers,” Morfit said, adding that ValueAct has in the past lost money on bets before they pay off big.

(Reporting by Svea Herbst-Bayliss; additional reporting by Imani Moise; Editing by Chris Reese Lauren LaCapra, and Aurora Ellis)