Analysts Dismiss Re-Rating Fears After Bright Citigroup (C) Earnings Update

The fourth-quarter earnings season for large-cap U.S. banks was characterized by a mix of solid operating results and negative market reactions, reflecting already demanding valuations and limited room for positive surprises. With few exceptions—notably Goldman Sachs (GS) and Morgan Stanley (MS), which have greater exposure to wealth management and investment banking—most of the sector corrected following earnings.

At the same time, the political debate around a potential 10% cap on credit card interest rates, reignited by President Trump, introduced a fresh regulatory overhang at a moment when the market was already less tolerant of asymmetric return profiles.

This is the backdrop against which Citigroup (C) reported its results. The bank delivered a clean Q4, showing clear signs of operational progress through NII growth, resilient deposits, strong expansion in Services, and continued capital returns to shareholders. Still, Citi continues to carry a structural return-on-capital issue that caps its re-rating potential.

As a result, while Citi is clearly in a better position today than in recent years, the combination of persistently low ROTCE, a valuation above book value, and lingering regulatory risks supports a more cautious interpretation—one that justifies a Hold stance rather than a Buy at this stage of the cycle.

Citigroup’s Q4 Was Clean, but Not a Turning Point

At first glance, Citigroup posted a solid set of Q4 results, even though it only beat on EPS and fell slightly short on revenues. Adjusted EPS came in at $1.81, versus expectations of $1.70, while revenues totaled $19.9 billion, modestly below the $20.55 billion consensus.

The revenue miss, however, was largely explained by the sale of Citi’s operations in Russia, which reduced the bank’s top line by roughly $1.2 billion and, in practice, would have pushed revenues above expectations. While Citi is not an NII-centric story and instead fits better as a fee- and flow-driven thesis, net interest income (NII)—the key profitability metric tied to lending—still grew 14% YoY to $12.2 billion in the quarter. Management also guided for 5%–6% NII growth ex-Markets in 2026, driven by loan and deposit growth. Taken together, these figures look constructive, but still too contained to signal any regime change in the Citi thesis.

Looking across the business, all five of Citi’s main segments delivered record revenues for full-year 2025. In Q4, investment banking fees jumped 35% YoY, benefiting from a strong rebound in M&A activity. Services revenues also grew 15% in the quarter, while Wealth and U.S. Personal Banking posted 7% and 3% year-over-year growth, respectively.

Overall, Citi delivered a clean and broadly constructive quarter, but the magnitude of the improvements remains insufficient to point to a structural shift in the story or to meaningfully offset potential credit headwinds and regulatory risks ahead.

Why Returns Remain Citi’s Structural Constraint

The main flaw in Citi’s thesis is that, despite beating earnings expectations, the bank continues to post the weakest return on capital among large-cap U.S. banks. Return on tangible common equity (ROTCE)—arguably the cleanest indicator of a bank’s economic quality—has never exceeded 9% under CEO Jane Fraser, even though she has delivered meaningful progress throughout her tenure. In 2025, for instance, Citi’s ROTCE stood at 7.7%, while direct peers such as JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) reported ROTCEs of roughly 21%, 14%, and 14.5%, respectively.

To put this in perspective, with the cost of capital for a large global bank typically in the 9%–10% range, a 7.7% ROTCE implies that Citi is not creating economic value, but merely recycling capital without structural efficiency. This structurally low ROTCE is largely explained by Citi’s higher capital buffers, driven by its broader international footprint and a regulatory profile that requires more capital and liquidity, combined with lower leverage versus peers. Even when earnings improve, too much equity sits under the business, mechanically dragging overall returns.

That said, CEO Jane Fraser remains committed to a long-term ROTCE target of 10%–11%, supported by three tangible levers. The first is capital release, including the sale of non-core assets such as the Russian operations and $13 billion in buybacks during 2025 as part of a $20 billion program.

The second is a mix shift, with greater emphasis on Services (28.6% ROTCE in 2025) and Wealth (12.1% ROTCE), while keeping Markets as a fee engine rather than a risk-taking business. The third lever is cost discipline and operating leverage, driven by further digitization and simplification, with management targeting an efficiency ratio of ~60% in 2026, down from 63% in Q4.

Taken together, it is reasonable to expect ROTCE to improve in 2026 relative to current levels, supported by ongoing buybacks, growth in Services and Wealth, and incremental efficiency gains. Still, while 7.7% is unlikely to be a new normal, reaching a sustainable 10% ROTCE remains challenging, as it depends on flawless execution and a benign credit backdrop—particularly given the tail risk of a potential 10% cap on credit card rates, which would directly pressure one of the key engines supporting the bank’s 2026 guidance on cards and spreads.

Valuation Reflects Citi’s Return Ceiling

That said, a structurally low ROTCE, well below that of its peers, reasonably justifies a discounted valuation for Citigroup. Unlike banks that consistently generate returns above their cost of capital, Citi has yet to prove it can sustain double-digit ROTCE, which naturally puts a ceiling on the multiple the market is willing to pay.

With Citi trading at a market value of roughly $201.8 billion at the time of writing, and reporting a tangible book value of about $97 per share in Q4, the stock currently trades at around 1.1x price-to-tangible book value. This represents a meaningful discount relative to peers such as Wells Fargo and JPMorgan Chase, which trade at multiples that are roughly two to three times higher. That gap, however, largely reflects structural differences in profitability and return profiles across their respective business models.

In short, Citi’s valuation above tangible book value feels somewhat uncomfortable for a bank that still delivers the weakest ROTCE among large-cap peers. At the same time, the current multiple already embeds some expectation of operational improvement and a clearer path toward ROTCE converging to double-digit levels in the foreseeable future.

Is Citigroup a Buy?

Wall Street’s consensus on Citigroup remains decidedly bullish. Of the 19 analyst ratings issued over the past three months, 15 are Buys and four are Holds. The average price target stands at $130.78, implying an upside potential of roughly 13% over the next 12 months.

See more Citigroup analyst ratings

Citigroup Is Improving, but the Case Remains Conditional

Citigroup is not my preferred long-term investment among the major U.S. banks, mainly because it continues to show the greatest structural efficiency weakness, exacerbated by its persistently low ROTCE. That said, the bank exits Q4 in a resilient position and heads into 2026 with tangible signs of operational progress, supported by sizable buybacks, continued growth in Services and Wealth, and a credible path toward improved efficiency.

All things considered, the most reasonable reading is that Citi is better positioned than it has been in recent years, but still far from proving a definitive structural shift in its return profile. While a convergence of ROTCE toward double-digit levels over the course of 2026 looks plausible, achieving—and sustaining—those levels remains highly conditional on flawless execution, a benign credit environment, and the absence of regulatory shocks, which currently stand out as the main risk.

With Citi no longer trading as a deep value, I believe a neutral stance is the most logical approach for now.