Despite decent performance of the overall Finance sector in the third quarter, Citigroup C disappointed investors as reflected by its price performance. Shares of the company depreciated 15.6% in the July-September period compared with the industry’s 2.1% decline. The stock also lagged the S&P 500’s rally of 8.5% in the same time frame.
Like many other companies, performance of Citigroup has been affected by the pandemic. However, recent developments regarding faults in the company’s risk management systems, CFO’s comments on disappointing revenue performance in third-quarter 2020 and other legal issues pulled the stock even lower.
Factors in Detail
Citigroup witnessed a major setback when in mid-September The Wall Street Journal reported that the bank may have to face a public rebuke from The Office of the Comptroller of the Currency and the Federal Reserve. This was due to its failure to improve its risk management systems and procedures.
Notably, Citigroup was expected to face a consent order that would make it necessary for the company to take some immediate action and improve its faulty controlling systems.
Further, the stock met with investors’ pessimism when CFO Mark Mason said that he expects additional reserves to be created in the third quarter. Also, overall revenues are expected to decline in the high single-digit range on a year-over-year basis due to the impact of lower rates and reduced levels of business activities due to COVID-19.
The company’s legal encounters during the quarter were another key reason for the stock ending in red. In August, Citigroup had accidently transferred about $900 million to the creditors of renowned cosmetic company, Revlon. The lender was able to recover some of the amount and stated that it was a clerical error.
Further, at the end of September, Citigroup agreed to pay $4.5 million in fine