Widely Traded 48 Hour Clock: Citi Misses The Mark

Recently Barron's ran a cover story on Citigroup, arguing that the stock was undervalued and that the market would soon see that the post-Sandy Weill company would outperform the market.

Well, investors will have to wait, perhaps a long time. The other side of the Barron's argument is that Citi is just too big, and that it might be a better investment for shareholders if it were broker into a few pieces. Sentiment may be moving that direction after Citi announced earnings.

Citi's net income rose only 4% despite a strong showing in the corporate and investment banking group where net income rose 26%. Global wealth management and global consumer banking lagged.

While the investment banking group's success was fueled by equity and bond activity, consumer banking results are tied to some large degree to the margin at which the bank can borrow capital and then lend it out. The dynamics of the two businesses are very different. And, one business does not feed customers or deal flow to the other.

The Citi results and a subsequent downgrade by Prudential are likely to feed the debate on whether the financial giant should be one company or two. With the stock trading down on earnings, perhaps Citi management should take another look at alternatives.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies that he writes about.