×

UPDATE 3-Citigroup sets higher profit targets at first investor day since crisis

crisis@ (Rewrites, adds detail on stock valuation)

NEW YORK, July 25 (Reuters) - Citigroup Inc issued loftier projections for its long-term profitability on Tuesday at the first major conference it has held for its own investors in more than nine years.

The fourth-largest U.S. bank said it expects to generate higher returns on shareholder equity and boost profits per share by 80 percent over the next few years.

About half of Citigroup's profit forecast is based on an expectation that it will be able to buy back more stock. Another 40 percent comes from expected performance of underlying businesses, helped by revenue growth and cost controls, with just 10 percent coming from rising interest rates.

Evercore ISI analyst Glenn Schorr characterized the bank's forecasts as not only better than expected, but "credible."

"We think investors will be happy," he wrote in a note to clients ahead of the event.

Citigroup shares rose 2.9 percent in early trading to $68. In its presentation, the bank said its projections imply a stock worth $100 per share.

Citigroup invited about 250 stock analysts and investors to hear executives speak in New York, its first investor day since May 2008.

The event comes four weeks after the U.S. Federal Reserve said Citigroup could begin trimming back extra capital it has built up since the 2007-2009 financial crisis, when it received three government bailouts to survive.

Since that time, Citigroup has sold and closed businesses around the world. It has also struggled to meet previous targets Chief Executive Michael Corbat set out, in part because it did not have the Fed's permission to use more capital to buy back stock.

In prepared remarks, Corbat said the bank decided to host its investor day now because it has finally "crossed an inflection point."

"We haven't yet delivered the level of returns that you, our investors, both expect and deserve," Corbat said. "You have been patient with us. And I want you to know that we don't take that patience for granted and we don't think it is inexhaustible."

Citigroup is still some distance from the targets it set out on Tuesday morning, and far behind some rivals.

The bank maintained a target for return on tangible common equity of 10 percent by 2019, but said it now expects that return to improve to 11 percent by 2010 and 14 percent over the longer term. Shareholders closely watch that statistic as a sign of how much profit a bank can generate from the money they have provided to it.

During the first half of this year, Citi generated an 8.2 percent return on tangible common equity, compared with 14 percent at JPMorgan Chase & Co. Analysts generally like to see minimum returns of 10 percent, which Corbat had intended to reach in 2015 but did not.

Ahead of the event, investors had questioned whether Corbat could produce enough profit from Citigroup's remaining business to hit long-term targets.

"Investors want to see additional drivers" of revenue beyond capital returns, Michael Cronin, an analyst with Standard Life Investments, who planned to attend the investor day, said in an interview on Monday.

He also wanted to hear about expenses. "Revenue growth is harder to control" than expenses, said Cronin, whose firm manages $350 billion of assets.

In its presentations, Citigroup said it expects to generate $9 in earnings per share in 2020, up from $5 per share over the last 12 months. It expects to save $2.5 billion in annual costs over that timeframe, $1.5 billion of which it plans to reinvest in its businesses each year. (http://citi.us/2tWkOvd)

In addition to Corbat and Chief Financial Officer John Gerspach, executives scheduled to speak at the event include Stephen Bird, chief executive for global consumer banking, Jud Linville, chief executive for Citi-branded cards, and Jamie Forese, chief executive over institutional client businesses, including capital markets, investment banking, corporate lending and transaction services. (Additional reporting by Sruthi Shankar in Bengaluru and Dan Freed in New York; Writing by Lauren Tara LaCapra; Editing by Tom Brown and Bill Rigby)