[金融地产] 20080509-Credit Suisse-Citigroup (C)

Investor Day Highlights
This morning, CEO Vikram Pandit led his first investor day. This was Step 1—
with detailing, as expected, of the “core Citi”, target returns on the franchise,
and performance measurement benchmarks. Our estimates and target price are
unchanged; this will be a multi-year process; Citi remains Neutral rated.
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Target returns/normalized earning power… management outlined a
target ROE on current capital of 16-18%, in line with our forecast and historic
results and to be achieved within 2-3 years, supported by 8-10% revenue
growth and improved operating efficiency. Longer term, with full
maximization of this franchise, return capacity should increase to 18-20%.
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Core earning power… On our forecast of Citi’s year-end 2009 common
equity base, a 16-18%, ROE would translate to earning power of $3.50-4.00
per share ($3.25-3.75 on the current capital base).
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Earnings risk… hurdles to achievement of the targets include the near term
cost of the credit cycle, the cost of non-core asset dispositions ($500Bn now
targeted which translates to as much as $10-12 billion in revenues to be sold
based on the run rate of program to date dispositions, see Exhibit 1) and the
need to upgrade the technology and operating infrastructure supporting this
franchise. We expect additional detail on the latter to follow.
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Our thesis on Citi… this is no easy fix, even for the best of managers.
Consider the credit cycle, the cost of asset dispositions (sold revenues and
earnings) and the need for infrastructure upgrades and integration… there’s
more downside than upside risk to estimates. The shares are rated Neutral.