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Citigroup (NYSE:C) Plans Exit From Mortgage Brokerage Business

 February 09, 2012 09:36 AM

Last week, banking giant Citigroup Inc. (NYSE:C) announced that it was exiting the mortgage brokerage business, where many banks have been grappling with the fallout from the housing collapse. According to Citigroup, most of the 300 employees tied to the brokerage business will be reassigned. The company's spokesman Mark Rodgers said that job "discontinuances" may be in the "low double digits", and that Citigroup will now focus on its own retail and correspondent channels instead. According to Rodgers, the mortgage brokerage channel generated less than 10% of Citigroup's $67.9 billion of mortgages last year.

On another note, the company appointed James Cowles, the head of markets, as the chief operating officer for the Europe, Middle East and Africa (EMEA) region, with Peter McCarthy as the chief administrative officer. The move is part of CEO of EMEA Michael Corbat's restructuring efforts for the division that produced about 16% of the bank's $78.4 billion in revenue last year.

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Citigroup ended last week at $33.54, experiencing a 4.85% rise on Friday, along with the across the board rally over the better than expected US unemployment figures. The company's stock has gained 25.34% since the start of the year, after slumping 44% in 2011.

Although the bank experienced a drop in its recent fourth quarter earnings, analysts are maintaining their optimistic view about the bank. On 1 February, Wells Fargo Securities analyst Matt Burnell upgraded Citigroup to a "buy" and raised the target price to $35-37. Despite "modest expectations for investment banking", Burnell expects the bank to deliver higher EPS growth as it achieves positive operating leverage in regional consumer banking, succeeds in meeting its target expense reduction of $2.5-3 billion this year, increases share repurchases and continues to wind down Citi Holdings. UBS also maintained its "Buy" rating and target price of $43 because of its low valuation and focus on risk reductions. In its research note, UBS wrote, "Citi has made solid strides in improving risk management, including winding down Citi Holdings." Jeffrey Harte of Sandler O'Neill rated Citigroup a "buy" with a $55 target price, based on its low price to book value, non-European international growth, small US mortgage exposure and dividend increase potential.

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