Citi's 2026 Outlook: Top Big Bank Performer with KBW's Chris McGratty

Citi's Turnaround and 2026 Performance

• 💡 Citi is undergoing a multi-year turnaround, simplifying its business by exiting countries and aiming to improve its Return on Equity (ROE) from bottom-tier to average.
• 📈 The stock has performed well, breaking through its 15-year ceiling of tangible book value, with deregulation in capital markets expected to further lift this ceiling.
• 🎯 While the stock has seen significant gains, projections suggest potential for another 65-70% upside if it reaches valuations between 1.8 and 2 times tangible book.
• 🗓️ A key event is Citi's investor day on May 7th, where they are expected to outline medium-term ROE targets of 12-14%, potentially compounding book value and driving earnings estimate revisions.

Capital Markets and Deregulation Impact

• 📊 Expectations for capital return have increased by approximately 30% year-on-year.
• 💰 There remains 100-200 basis points of excess capital yet to be factored into models, with ongoing debates about buybacks, dividends, and inorganic growth.
• 🚀 Earnings revisions for the largest banks are up 16% year-on-year, significantly outperforming smaller banks and correlating strongly with stock performance.

Regional Banks and Investment Strategy

• 🏦 For regional banks, a selective approach is advised, focusing on deploying capital where the highest returns are.
• 📈 Citizens Bank is highlighted as a favored name, with an expected ROE improvement from 10% to 15-16% through organic momentum and capital markets exposure.
• 🤝 It is anticipated that Citizens Bank will not acquire another bank, relying on existing organic momentum for continued growth.

International Exposure Through Domestic Banks

• 🌍 While KBW focuses on domestic banks, major players like JPMorgan, Morgan Stanley, and Goldman Sachs have significant international businesses.
• 🌐 Capital markets tailwinds are strong globally, and international exposure can be gained through these large domestic banks, with Citi also offering international play.