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ValueAct bets on Citi’s rebound; raises stake to $2.1 billion

This month, Wall Street witnessed some major equity transactions involving activist investors, who either hiked or trimmed their stake in leading corporates.  On the heels of Carl Icahn divesting his stake in American International Group (AIG), Citigroup [C] sent a communiqué to investors stating that San Francisco-based investment management firm Value Act Capital raised its stake in the company to $2.1 billion over the past few months.

In another bulk purchase involving high-value stock, last week Warren Buffett ramped up his stake in Apple (AAPL) to 5%, impressed by the iPhone maker’s technological prowess and strong fundamentals.

The Jeffrey Ubben-led ValueAct intends to continue building its stake in Citi in the coming months, thereby adding steam to the bank’s ongoing recovery from the financial crisis. ValueAct believes that Citi has the potential to gain significantly by helping large corporates meet their funding requirements. According to the investment firm, the market is currently not approaching Citigroup from the right perspective.

Encouraged by Citi’s long-term prospects in creating value for shareholders, as a result of an effective restructuring program, ValueAct predicts the bank’s financials would be strong enough to record quarterly earnings of more than $10 per share by 2020.

San Francisco-based Value Act Capital raised its stake in the company to $2.1 billion over the past few months

“Citigroup is now growing in a sustainable fashion, is less exposed to both earnings volatility and risk of capital impairment, and is better capitalized and more securely funded than at any point in our lifetime,” stated ValueAct. It is probably taking a cue from the stringent stress test mandated by the Federal Reserve for capital payments made by leading financial services companies, prompting them to set aside a portion of their cash to tackle any potential fiscal crises in future.

Welcoming ValueAct’s investment, a Citi official said the bank is holding constructive discussions with the hedge fund with regard to the equity transactions.

In a similar move, two years ago, ValueAct had purchased the shares of Morgan Stanley (MS), the investment bank that is going through a crisis similar to that of Citi, only to sell the holding in the run-up to the presidential election.

Citi shares closed the last session up 1% and gained nearly 2% in premarket trading Tuesday. The stock has lost more than 5% since the beginning of 2018.

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