Capital Current
In this edition of the Smart Investor newsletter, we spotlight a global banking leader poised for renewed growth and re-rating. We’re not selling any stocks this week, awaiting clearer signals amid the earnings avalanche. But first, let’s review the latest portfolio news and developments.
1
Portfolio News and Updates
❖ GE Aerospace (GE) delivered a classic “beat and raise” in Q3, with revenue up 26% year-over-year to $11.3 billion, versus $10.38 billion expected. Operating profit was up 26% to $2.3 billion, and free cash flow up 30% to $2.4 billion. Q3 EPS soared by over 44% year-over-year to $1.66, compared to the consensus estimate of $1.47. Both commercial and defense business lines performed well. Operating profit in the Commercial Engines and Services (CES) division rose 35% year-over-year. The segment delivered 664 commercial engines, including 511 LEAP engines, reflecting 40% year-over-year growth in LEAP deliveries. Meanwhile, the Defense and Propulsion Technologies (DPT) segment delivered revenue growth of 26%, with profit surging by 75% year-over-year, as defense engine output jumped 83%. DPT backlog reached $19 billion, up $1.5 billion year-over-year. Underscoring confidence in further ramping up momentum going into 2026, the aviation technology firm raised its full-year outlook. GE now expects revenue growth in the high teens (up from the mid-teens), operating profit in the range of $8.65 to $8.85 billion (up $400 million at midpoint), EPS guidance raised to $6.00-$6.20 (up $0.40 at midpoint), and free cash flow guidance increased to $7.1-$7.3 billion (up $500 million at midpoint).
1
❖ RTX (RTX) revealed strong Q3 results with top and bottom lines exceeding estimates. Total revenues rose 12% year-over-year (13% organically, excluding divestitures) to $22.5 billion – above the consensus of 21.30 billion. Adjusted EPS came in at $1.70, versus the expectations of $1.41. The quarter saw double-digit growth in commercial OE, aftermarket, and defense. Free cash flow came in at $4.03 billion, more than double that of Q3 2024. The company’s backlog reached $251 billion – up 13% year-over-year – including $148 billion in commercial and $103 billion in defense. CEO Chris Calio attributed the upswing to global demand, saying that RTX had received $37 billion of new deals in Q3 alone. Based on its robust year-to-date performance and ongoing demand strength, RTX raised its full-year adjusted sales outlook to $86.5-$87 billion (8-9% organic growth), increased adjusted EPS guidance to $6.10-$6.20 (25-27% growth), and maintained free cash flow outlook of $7-$7.5 billion.
1
❖ Morgan Stanley (MS) reported a standout quarter in Q3, delivering a massive third-quarter earnings beat, as well as record quarterly net income and revenue. Revenue rose 18% year-over-year to $18.2 billion. Adjusted EPS surged nearly 50% from the prior year, arriving at $2.80 and far surpassing the expectations of $2.10. Total client assets increased by $1.3 trillion over the past year, reaching $8.9 trillion, which shows strong growth and client engagement. Wealth management reached $7 trillion in total client assets, with $81 billion in net new assets and $42 billion in fee-based flows. Meanwhile, the return on tangible common equity (ROTCE) rose to 23.5%, up from 17.5% last year, reflecting high operational efficiency.
While all Morgan Stanley’s divisions delivered strong performance, growth was notably led by investment banking, where net revenues soared 44% year-over-year on record deal-making, and equity trading, where the top line expanded by 35%, outperforming competitors like Goldman Sachs. The firm’s capital strength was underscored by a CET1 ratio of 15.2% and excess capital of over 300 basis points. Management has also highlighted strategic investments in AI initiatives like DevGen AI and LeadIQ, enhancing productivity and client engagement across its platforms, as well as continued expansion of investments in digital assets and ETrade platform, which are fueling innovation-led growth.
Looking forward, Morgan Stanley anticipates continued operating leverage, durable earnings, and growth in net interest income (NII) in Q4 despite a lower rate environment, with a focus on capital deployment in investment banking and wealth management, as well as organic investments and technology incorporation in business processes. The firm reconfirmed its goal to exceed $10 trillion in total client assets. Following the blockbuster results, MS said it is considering increasing its buyback activity after completing more than $1 billion of share repurchases in Q3 2025.
1
❖ TSMC (TSM) reported stellar Q3 2025 results, beating analyst consensus on revenue and EPS by a wide margin. Revenue jumped 30.3% year-over-year in NT$ and 40.8% in USD, reaching $33.10 billion. Gross margin for the quarter was 59.5%, operating margin was 50.6%, and net profit margin was 45.7%. Importantly, advanced technologies – defined as 7-nanometer and below – accounted for 74% of total wafer revenue, with the shipments of 3-nanometer reaching 23% of the total. This weight of the most advanced chips in total sales explains the earnings surge, as demand continues to outpace supply. The world’s leading chip foundry posted a record 39% jump in third-quarter earnings, with the adjusted EPS surging to an all-time high of $2.90, driven by strong demand for AI and 5G chips.
Looking forward, management noted that AI demand remains exceptionally strong, supporting the forecast for AI accelerator revenue CAGR of mid-40% through 2029, while hinting at an upgrade to this guidance in early 2026. The company also lifted its 2025 revenue growth outlook to the mid-30% range from around 30%, and reaffirmed capital spending of up to $42 billion for the year.
In other news, Nvidia and TSMC unveiled the first U.S.-made wafer for Nvidia’s advanced Blackwell AI chips, produced at TSMC’s Arizona facility. This marks a historic milestone as it’s the first time such a critical and advanced chip for AI applications has been manufactured domestically – a significant move toward reducing reliance on foreign supply chains in the strategically crucial semiconductor industry.
1
❖ Interactive Brokers (IBKR) reported strong Q3 2025 results, beating Wall Street EPS and revenue expectations. Adjusted EPS of $0.57 per share increased by 42.5% year-over-year, driven by a more than 21% rise in net revenue to a record of $1.66 billion. Net interest income (NII) increased 21% to an all-time high of $967 million on stronger securities lending activity and higher average customer margin loans and customer credit balances. Commission revenue increased 23% to a record $537 million on higher customer trading volumes, specifically in stocks, where volumes jumped 67% year-over-year. Management also underscored expansion in crypto, with trading volumes soaring more than 5x year-over-year.
Key business and operating metrics showed significant expansion, with total customer accounts rising 32% from the prior year to 4.13 million and daily average revenue trades (DARTs) surging 34% to 3.62 million. Customer equity increased 40% to $757.5 billion. Number of IBKR’s customers crossed four million, with client cash balances reaching $150 billion – a 30% increase from the previous year.
IBKR stock dropped post earnings, despite enviable results and analyst support – particularly from Goldman Sachs, which hiked the firm’s price target to a Street-high $91, citing strong revenue beat and higher-than-expected pre-tax margin. The decline is likely attributed to profit-taking after a nearly 55%+ gain this year, along with investor concerns that lower rates could slow net interest income growth. Management also expressed caution around global risks, and despite overall optimism, haven’t raised guidance.
1
❖ Bank of New York Mellon (BK) delivered another quarter of strong results, exceeding Wall Street expectations on both earnings and revenue performance. The bank benefited from robust net interest income, broad-based fee growth, and digital innovation momentum, but saw costs tick higher.
BNY Mellon’s revenue rose 9% year‑over‑year, climbing to a record $5.1 billion on the back of broad-based growth across the platforms that make up its Securities Services and Market and Wealth Services segments. The bank reported a pre-tax margin of 36% and generated an ROTCE of 26% and ROE of 14%. Adjusted EPS was $1.88, up more than 25% year-over-year. Net interest income jumped 18% YoY to $1.24 billion, driven by reinvestment of maturing securities at higher yields and stronger deposit spreads. Assets under management was unchanged at $2.1 trillion.
On its earnings call, management emphasized the success of its platform transformation and AI initiatives, highlighting its internal AI engine “Eliza” as part of company‑wide productivity gains. The bank continues to expand digital custody and blockchain applications and has formed AI research collaborations with Carnegie Mellon University. Although technology investment has led to higher expenses in Q3, longer term it is expected to drive higher efficiency and profitability. The firm guided for FY 2025 net interest income up 12% YoY and expenses up ~3%, calling out ongoing efficiency programs to sustain positive operating leverage.
1
❖ A consortium of investors, including BlackRock’s (BLK) Global Infrastructure Partners (GIP) division, Microsoft (MSFT), Nvidia, and xAI has agreed to acquire Aligned Data Centers, a leading data center operator specializing in cloud and AI infrastructure, for $40 billion, in what will be the largest global data center deal to date. The acquisition is the first investment of the Artificial Intelligence Infrastructure Partnership (AIP), founded in 2024 by BlackRock, MGX, Microsoft, and Nvidia to accelerate AI infrastructure investments. The deal reflects the surging demand for AI computing power, as companies race to build out infrastructure to support advanced AI workloads and training. The consortium aims to deploy an initial $30 billion equity capital with potential expansion up to $100 billion including debt.
1
❖ Alphabet’s (GOOGL) stock has continued to gain altitude with several notable announcements drawing investor attention. The company’s Google division said it’s planning to release the latest version of its flagship AI model, Gemini 3.0, as soon as December. According to media reports, the model will be significantly upgraded, which is expected to boost it to the top of the leaderboard. Meanwhile, sources say that a team of Google developers is working to integrate Gemini into Apple’s operating system. The stock is widely supported by analysts, with the latest praise coming from BofA, which lifted its price target from $252 to $280. The bank’s analysts cited strong execution momentum in AI and cloud demand, as well as expectations for above-consensus revenue growth in Q3, supported by multiple tailwinds across ads, search, cloud, and AI.
1
❖ International Business Machines (IBM) has partnered with Elon Musk’s Groq AI to make AI run faster and more efficiently for enterprise clients. The plan brings Groq’s cloud-based inference system, GroqCloud, into IBM’s WatsonX Orchestrate platform. The partnership enables IBM’s AI agents to respond instantly, scale efficiently, and reduce operating costs for enterprise clients. As a result, it should contribute to accelerated revenue growth from AI adoption and enhanced profitability through operational efficiencies and higher-margin software and services, supporting improving profit margins and cash flows as soon as 2026.
In other news, IBM announced the acquisition of Cognitus, a leading SAP S/4HANA services provider specializing in AI-powered, industry-specific solutions, particularly for regulated and complex industries such as aerospace, defense, utilities, manufacturing, and government contracting. The integration of Cognitus’ capabilities allows IBM to create a “digital transformation one-stop shop” through comprehensive, one-stop solution combining deep SAP expertise with AI-powered acceleration tools. The deal is expected to drive revenue growth in IBM’s consulting services by winning more SAP transformation contracts and improve profit margins.
1
❖ Amphenol (APH) has been one of the top gainers in the large-cap universe this year, rising about 85% so far in 2025 thanks to soaring demand for its electrical, electronic, and fiber optic connectors from the data center build-outs. The rally appears to continue into earnings, scheduled for October 22, as multiple analysts have raised their price targets on the stock. Two notable analyst actions arrived over the past couple of days, with JP Morgan lifting its target from $125 to $145, and BofA upgrading APH to “Buy” from “Hold” while raising the PT from $120 to the Street-high $150 (which implies further upside of about 18%). Analysts praised Amphenol’s strong organic growth in the IT and Datacom sectors, which have become key revenue drivers on the back of the surging Ai infrastructure demand, along with the steady performance across industrial and automotive markets.
1
❖ Keysight Technologies (KEYS) announced the completion of its acquisitions of Spirent, Optical Solutions Group, and PowerArtist, enhancing its software-centric solutions strategy. These acquisitions, together valued at approximately $1.7 billion, are aligned with KEYS’ long-term growth drivers. Spirent expands Keysight’s network testing and automation capabilities across communications, 5G, satellite, and cybersecurity. Meanwhile, Synopsys’ Optical Solutions Group and Ansys’ PowerArtist broaden the company’s reach into optical design and power optimization for semiconductors and high‑performance electronics. The management expects them to be accretive to gross margin, operating margin, and EPS within 12 months post‑close.
1
❖ Oracle (ORCL) declined over the past couple of days as JP Morgan downgraded the stock from “Buy” to “Hold,” citing increasing costs from aggressive AI expansion, compressing margins. The firm noted that these costs are expected to be an overhang on investor confidence in the near term, demanding strict financial discipline to counter financing and balance sheet risks.
The downgrade followed earlier media reports – which knocked ORCL’s stock down last week – showing that Oracle’s AI cloud business generates much thinner margins than its broader cloud and license business. The company’s management addressed these claims, revealing a solid financial outlook and stating that its AI cloud server-rental business would have a gross margin in the range of 30-40% by 2030. Oracle also hiked its OCI revenue outlook for 2030 to $166 billion from the already ambitious $144 billion guidance given in its recent earnings report, with the new target implying a CAGR of near 75% over five years. The company said that its RPO now exceeds $500 billion as customer demand outstrips its current capacity.
The tech giant has emerged as a key player in the AI cloud space, forging multi-billion-dollar deals with OpenAI, xAI, Meta, Nvidia, AMD, Cohere, and others, and becoming a founding partner in the world’s largest AI data center project, Stargate. Its AI business’ growth over the past quarters has been astronomical, fed by insatiable cloud infrastructure demand – and requiring considerable capex.
As Oracle’s founder Larry Ellison once said, “You pay a price for growing too rapidly.” For FY2026, capital expenditures are expected to increase to about $35 billion – 60% higher than the year before and more than triple FY2024. To bridge any potential financing gap, management has discussed incremental debt, vendor financing for GPUs/networking, and partner-leased facilities. Importantly, ORCL’s deployment model is designed to keep the lag between spend and revenue short, so much of the capex ramp should be offset as new capacity comes online.
Despite JP Morgan’s less enthusiastic stance, Oracle has continued to receive extensive analyst support elsewhere, with multiple price target upgrades over the past few days alone. Most analysts seem unfazed by the hefty capex in light of the surging revenue growth and massive RPOs. However, the stock may continue experiencing elevated volatility until the funding path becomes clearer.
1
1
Portfolio Stocks Under Review
❖ We are keeping Cisco Systems (CSCO) under review due to the stock’s muted performance since mid-August. Although the stock seems to be doing better recently, we prefer to hold it under the magnifying glass until its earnings report in mid-November.
On August 14, Cisco reported strong fiscal Q4 2025 results, with both revenue and EPS beating expectations. AI infrastructure orders far exceeded targets, Splunk integration is boosting security offerings, and its legacy networking business posted double-digit growth even as capex declined. Cisco’s guidance for the upcoming quarter and fiscal year 2026 was positive, projecting both FQ1 and full fiscal year EPS above analyst consensus and outlining continued revenue expansion that may seem modest versus high-growth peers, but is strong compared to CSCO’s recent past.
CSCO is actively reinventing itself – moving from a networking incumbent to a key player in enterprise AI infrastructure. Its scale – 35 million devices and 1 billion clients – and unified hardware, software, and cloud stack create a strong foundation for AI workloads. Innovations such as Cisco Data Fabric and Splunk Federated Search for Snowflake highlight its push toward a unified AI-ready data architecture. The Splunk integration is showing growing synergy, contributing significantly to its security business, which has seen spectacular growth.
The company introduced over 20 new AI-centric products recently, focusing on networking and security solutions that integrate AI capabilities. Just recently, CSCO revealed its new Silicon One P200 chip and the Cisco 8223 router system, designed specifically to address the intense AI workload traffic between data centers. These solutions enable synchronization of geographically separated AI clusters – an essential capability as AI compute demands outgrow single data center capacity. The unified chip architecture combining routing and switching within a single chip meets strong hyperscaler demand, significantly reducing power consumption and simplifying network design. This gives Cisco a competitive edge in the AI data center interconnect market.
Partnerships with Nvidia, Microsoft, and sovereign AI players like HUMAIN reinforce Cisco’s role in the global AI buildout. UAE Stargate – a massive $500 billion AI data center infrastructure project in which CSCO is a key tech partner alongside Nvidia and Oracle – has nearly completed the first 200 megawatts of the planned 5-gigawatt capacity. The recently announced collaboration between NetApp and Cisco, integrating NetApp’s AFX architecture with Cisco Nexus switches, enhances their joint infrastructure solutions with disaggregated storage and advanced networking that efficiently power AI workloads, reinforcing their leadership in AI-ready enterprise data infrastructure.
These innovations and partnerships could serve as important catalysts for the stock and have led some industry analysts to declare CSCO a “must-hold stock” in the AI era. Analyst sentiment remains constructive, with a consensus rating of “Buy” and an average price target implying about 12% upside. Institutional flows remain supportive, while retail positioning is more hesitant. The recent stock behavior shows investors remain cautious, with shares below their August peak despite recent strength.
We are inclined to hold CSCO in the Portfolio but want to see sentiment catch up to fundamentals – or fundamentals break out further – before making a final decision.
1
1
Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is now in full swing, with Amphenol (APH), Teledyne Technologies (TDY), Vertiv Holdings (VRT), and IBM (IBM) reporting today, and the quarterly releases from Blackstone (BX), General Dynamics (GD), Visa (V), Modine Manufacturing (MOD), Alphabet (GOOGL), and Microsoft (MSFT) coming over the next week.
❖ The ex-dividend date for Bank of New York Mellon (BK) is October 27.
w
1
New Buy: Citigroup (C)
Citigroup Inc. is one of the world’s largest and most globally integrated financial institutions, serving as a central conduit for capital, commerce and liquidity across more than 100 countries. Through its interconnected businesses in services, markets, banking, wealth management and consumer finance, Citi facilitates the movement of money and trade at a scale few can match. It is the leading provider of cross-border payments, securities services and institutional banking to multinational corporations and governments – a position reinforced by its technology investments and deep regulatory reach. With an unmatched global transaction network and a renewed focus on capital efficiency and client profitability, Citigroup stands as a critical infrastructure player in the global financial system – balancing scale, innovation and risk discipline to deliver steady performance across economic cycles.
1
Return on Change
Citigroup’s story begins more than two centuries ago, when its predecessor, the City Bank of New York, was founded in 1812 to finance commerce and trade in the young American economy. Through industrial booms, world wars, and globalization, it evolved into one of the world’s first truly international banks. The 1998 merger of Citicorp and Travelers Group cemented its position as a financial conglomerate with reach across retail, investment, and institutional banking – a scale that few peers could rival. That same vastness, however, would later prove to be its greatest challenge. By the late 2010s, Citi’s far-flung operations had become unwieldy, its cost structure heavy, and its returns persistently below those of other global banks.
Over the past half-decade, Citigroup has moved from being a sprawling global bank weighed down by legacy complexity to a streamlined, client-focused institution with clear growth levers. When Jane Fraser became CEO in 2021 – the first woman to lead a major U.S. bank – she inherited a business admired for its reach but criticized for its inefficiency. Her mandate was clear: simplify, modernize, and refocus Citi’s immense network around its most competitive strengths.
What followed was the most consequential overhaul in a generation. The bank began unwinding years of operational sprawl, exiting consumer-banking operations in 14 markets across Asia and EMEA, including Indonesia, Thailand, and Poland. It divested its Mexican retail arm, Banamex, retaining a minority stake to preserve strategic access while freeing capital for higher-return uses. Cost discipline became relentless – headcount reductions, structural reorganization, and technology integration were all part of the same reset. A target to eliminate 20,000 roles by 2026 was matched with a multi-billion-dollar technology investment program designed to shrink complexity rather than capacity.
At the same time, Citi doubled down on its institutional engines – the global Services and Markets divisions that move trillions daily in trade, payments, and securities. In these businesses, technology became the lever for scale. The integration of AI tools across compliance, trading, and software development freed over 100,000 developer-hours weekly, while its Treasury & Trade Solutions unit extended its leadership in cross-border payments and digital asset infrastructure. Partnerships with firms such as BlackRock and Nasdaq reinforced its ambition to become the backbone of institutional finance rather than its front office.
Citi’s transformation has not been cosmetic; it has been existential. The bank that once struggled under its own weight has turned the corner –becoming leaner, faster, and more disciplined. By shedding what no longer fit and investing where its network creates true competitive advantage, Citigroup has reasserted its place as one of the world’s indispensable financial powerhouses, positioned for durable growth in the decade ahead.
1
Balance and Flow
Citigroup today operates as a focused global banking powerhouse built around five complementary businesses – Services, Markets, Banking, Wealth, and U.S. Personal Banking. Together, they form a platform designed for scale, balance, and resilience across market cycles. This structure reflects the company’s deliberate shift from sprawling complexity to a streamlined, client-centric model.
Services has become Citi’s cornerstone, contributing roughly 40% of total revenue. Through Treasury and Trade Solutions and Securities Services, it facilitates the movement of capital and assets for multinationals and governments in more than a hundred countries. Citi manages nearly $30 trillion in assets under custody and administration, giving it unmatched reach in global payments and cross-border liquidity – areas that continue to benefit from digital adoption, nearshoring, and the expansion of instant-payment networks.
Markets, which accounts for about a quarter of revenue, anchors Citi’s institutional strength. Its trading, financing, and risk-management platforms connect the world’s largest corporate and sovereign clients, supported by integrated clearing systems and AI-enhanced risk analytics. This sophistication allows Citi to manage balance-sheet efficiency and client demand across volatile rate and currency environments.
Banking contributes roughly one-fifth of revenue, encompassing advisory, capital-markets, and corporate-lending activity. The revival of dealmaking has reignited Citi’s investment-banking engine, with momentum across equity and debt issuance and renewed confidence among financial sponsors. These linkages between Banking, Markets, and Services reinforce Citi’s ability to capture value across the full transaction chain – a strength few institutions can replicate.
Wealth Management, representing about 10% of revenue, has emerged as a key growth avenue. Following its global consumer exits, Citi is focusing on high-net-worth and affluent clients across the U.S., Asia, and the Middle East, positioning itself at the intersection of private banking and institutional advisory services. U.S. Personal Banking, about 5% of total revenue, remains a stable earnings contributor and a proving ground for Citi’s consumer-technology and data initiatives.
Citigroup enters 2026 from a position of rising momentum. Analysts expect earnings growth to outpace most U.S. peers, supported by simplification, cost discipline, and a rebound in investment-banking and wealth revenues. The company’s global footprint and diversified income base give it flexibility as monetary conditions evolve – enabling growth even as interest margins normalize. Its focus on higher-return institutional businesses and continued AI-driven productivity gains underpin a constructive medium-term outlook.
Citi’s adoption of proprietary AI tools has become central to that shift. More than 180,000 employees now use internal automation systems, while agentik.ai – the firm’s in-house generative-AI platform – is being rolled out to accelerate software development, compliance testing, and control processes. These technologies are enabling Citi to turn efficiency into capacity, supporting execution speed and operating discipline across its institutional network.
While no major U.S. bank is immune to a pronounced decline in interest rates, Citigroup appears better positioned than most peers to weather it. Its growing share of non-interest income – particularly from markets, services, and investment banking – gives it a more balanced earnings mix that can offset compression in lending margins. This diversification, together with operational simplification and rising productivity from technology investments, supports resilience even in a lower-rate environment.
1
Yield Curve Rising
Citigroup’s third quarter of 2025 carried the unmistakable tone of a bank in control of its turnaround. Net income surged by more than 23% to $3.8 billion, or $1.86 per share, while adjusted earnings – excluding the Banamex-related goodwill impairment – climbed to $2.24. Total revenue rose 9% year over year to $22.1 billion, surpassing analyst expectations and marking the seventh straight quarter of revenue and EPS beats. Adjusted return on tangible common equity (ROTCE) improved to 9.7% from 7.0% a year earlier, continuing the steady climb toward Citi’s 10-11% target range for 2026.
Momentum was broad and deep across the franchise. Markets segment revenue increased 15% year over year, driven by record prime balances and sustained client trading activity. Banking surged 34% as dealmaking accelerated, with stronger advisory pipelines and a rebound in both equity and debt underwriting. Services, Citi’s largest segment at roughly 40% of group revenue, rose 7% on higher fees in Treasury and Trade Solutions and Securities Services. Wealth grew 8% on record client inflows and asset growth, while U.S. Personal Banking posted steady, profitable expansion of 7% year-over-year. The combination reflects the balance Citi has been striving for – a mix less dependent on interest margins and more powered by global, fee-based engines.
Expenses rose 9% on a reported basis but only 3% when excluding one-time charges, reflecting disciplined cost management and ongoing efficiency gains. The adjusted efficiency ratio improved by 360 basis points year over year to 61.4%. Credit performance remained stable, and capital metrics stayed robust: the Common Equity Tier 1 ratio stood at 13.2% – more than 100 basis points above regulatory requirements – underscoring a position of financial strength.
Management raised its full-year net interest income (ex-Markets) guidance to around 5.5% growth, up from 2-4% previously, and reaffirmed revenue expectations above $84 billion for 2025 – an increase of roughly 8-9% from last year. Adjusted expenses were reaffirmed near $53.4 billion, up about 3% year over year, and the efficiency ratio target of below 64% was maintained. Analysts, encouraged by Citi’s consistent delivery, now forecast EPS of about $8.10 for 2025 – implying annual profit growth of about 36% – and nearly $9.90 for 2026.
A potential catalyst lies in the evolving regulatory landscape. If the Trump administration’s proposed easing of capital rules moves forward – particularly the recalibration of the GSIB surcharge¹ and relaxation of the supplementary leverage ratio² – large U.S. banks stand to gain. Citi, with its sizable capital buffer and streamlined structure, could benefit more than most. Lower requirements would free up billions in capital for buybacks and investment, further lifting its return potential.
Citi exits 2025 as a stronger, more focused institution – its balance sheet fortified, earnings diversified, and guidance reinforced by execution. The numbers now tell a clear story of follow-through: simplification translating into scale, and scale into sustained profitability.
—
1 – GSIB surcharge – the additional capital buffer applied to Global Systemically Important Banks. Recalibration would lower this buffer, freeing capital for deployment.
2 – Supplementary leverage ratio (SLR) – a measure requiring minimum Tier 1 capital relative to total exposure. Easing the SLR allows banks to operate with less capital against assets, increasing lending and investment flexibility.
—
1
Compound Interest
Citibank’s peer group spans some of the largest banks in the U.S. and the world. JPMorgan, a Smart Portfolio holding, remains the sector’s gold standard in profitability, capital strength, and diversification, serving as the reference point for all major comparisons. Bank of America is closest in operating breadth to Citi, sharing large consumer, commercial, and markets franchises. Wells Fargo, though more domestically focused, provides a useful contrast through its balance-sheet structure and retail deposit base. Finally, Morgan Stanley, another Smart Portfolio holding, represents a high-margin benchmark in wealth and institutional dynamics, an area where Citi continues to expand its focus.
Citi’s capital adequacy ratio (CET1) is the strongest in the group, and its profitability metrics continue to trend upward, narrowing the gap with peers as efficiency initiatives take hold and higher-return institutional businesses scale. Meanwhile, revenue growth is second only to Morgan Stanley, while EPS (both trailing and projected) leads the peer set by a wide margin. Despite this performance, and even though Citi’s stock has outpaced all peers year-to-date and over the past 12 months, it remains the most attractively valued of the group.
The stock trades below the peer average across GAAP and adjusted P/E ratios (both trailing and forward) as well as on a price-to-book (P/B) basis. Most notably, Citi’s price-to-tangible-book (P/TBV) multiple sits near 1.1×, significantly below competitors ranging from roughly 1.5× to 3.0×. That discount reflects lingering caution from the pre-turnaround years but also underscores the potential for a re-rating as its profitability trajectory improves and ROTCE moves toward the 10-11% target.
Stock-price appreciation potential is only part of Citi’s investment thesis, albeit an important one. The company has a clearly structured capital allocation framework, centered around maintaining strong capital and liquidity, investing in growth and simplification, and returning excess capital to shareholders.
Citi has been paying dividends for decades, and although it was forced to suspend the payments during the 2008-2009 financial crisis, they were resumed in 2011 and have grown since at a CAGR of over 30%. At its current 2.42%, Citi’s dividend yield is second only to Morgan Stanley among its closest peers, and the cash payouts are expected to continue increasing for years to come.
Moreover, in recent years, Citi has been a prolific buyer of its shares. While it doesn’t commit to a fixed percentage, in practice it aims to return the majority of excess capital via buybacks when earnings visibility is strong. After repurchasing about $3.75 billion worth of shares over 2024, the company’s board approved a $20 billion multi-year common stock repurchase program in January 2025, with no set expiration date. During the three quarters of 2025, the bank repurchased about $8.75 billion worth of shares. Moreover, management indicated that capital return will rise as restructuring and risk-control investments taper, and as proceeds from the Banamex stake sale potentially free ~$8 billion in additional capital.
With earnings momentum accelerating, excess capital compounding, and the regulatory tide shifting toward a more flexible regime, Citi enters 2026 with clear room for multiple expansion. As return on tangible common equity rises and capital distribution accelerates, the gap between perception and performance should continue to narrow – positioning Citi not just for recovery, but for re-rating.
1
Investing Takeaway
Citigroup offers investors a combination of scale, diversification, and renewed operating discipline. The bank has emerged from years of restructuring as a more focused and efficient global franchise, balancing institutional strength with expanding wealth and services platforms. Its technology investments – particularly in automation and AI integration – are translating into lower costs and faster execution, while its simplification strategy supports higher returns on tangible equity. With one of the strongest capital bases among U.S. banks and a clear capital-return framework, Citi enters 2026 positioned for both earnings growth and valuation catch-up. For investors seeking global exposure, improving profitability, and long-term upside as sentiment normalizes, Citigroup presents a compelling case for sustained re-rating and durable shareholder value creation.
1
1
Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have been volatile, but the Club has regained RTX, which surged after earnings. Now the Winners are back to 17 stocks: GE, AVGO, ANET, ORCL, EME, TSM, HWM, APH, IBKR, PH, VRT, CRWD, GOOGL, IBM, RTX, MTZ, and UBER.
The first contender for the Club’s entry is still BK with a 29.48% gain since purchase. Will it return to the ranks of the Winners, or will another stock outrun it to the finish line?
1
1
|
