CNBC's Jim Cramer on Wednesday explained why his charitable trust owns the stock of Citigroup, which is down about 11 percent in the last year and a far cry from its all-time highs in the $500 range last decade.
The head and heart don't align on the security, but the stock is "ridiculously cheap," he said. It's one that investors should own for the tangible book value, which Cramer called the most important metric for bank stocks—how much its worth if the business was shut down, liquidated, and proceeds returned to shareholders.
But Citigroup isn't closing up shop any time soon, he said.
"In other words, it's illogical to sell the stock of Citigroup," the "Mad Money" host said. "Emotionally, it's very tough to own, but nobody should rely on their emotions to make money management decisions."
The stock is trading at about a $3 discount to its book value, and Citigroup plans to repurchase 8 percent of its shares, Cramer noted. In defense of Citi CEO Michael Corbat, the bank stocks are all trading awfully, including Goldman Sachs, he said.
Cramer also pointed out that Keycorp, the parent of Keybank, has a safe dividend, higher yield, and same earnings multiple as Citigroup. With 1,100 branches in 15 states, Keycopr would make a compelling case for an acquisition, but no major bank or hedge funds have shown willingness to buy because some long-term interest rates have fallen below short-term interest rates, he said.
Many investors fear a recession is around the corner because of that inverted yield curve.
"I think the recession fears, people, are totally overblown, but the simple fact is that there's no real catalyst for the bank stocks, unless the Fed decides to cut interest rates several times and I don't see that happening," Cramer said. "As logical as it is to own Citigroup here, maybe we're sticking … because of an irrational fear that the stock will finally start rallying the moment we decide to sell."
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