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Citi's next challenge

Monday, July 15, 2013 - 01:29

July 15 - Citigroup reported better than expected results- but its exposure to emerging markets raises questions about its vulnerability. Bobbi Rebell reports.

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The celebration could be short lived at Citigroup. The bank had a great quarter by all accounts- profits jumped 42 percent. Rising home prices cut mortgage losses- and bond trading revenue jumped. But Citi gets about 58 percent of its revenue from outside North America. And slowing growth in emerging markets could cut into those profits. Morningstar's Jim Sinegal: SOUNDBITE: JIM SINEGAL, DIRECTOR, FINANCIAL SERVICES RESEARCH, MORNINGSTAR (ENGLISH) SAYING: "Those markets tend to be volatile and we've seen them slowing down. We've seen China and Latin America slowing down. Citi could run into some problems in the near term. That said they are so much more well capitalized than they were a few years ago they should be able to handle any problems." And that fact is key- the bank has done a lot to get its house in order after years of management problems. CEO Michael Corbat is following through on changes like cost cutting and hiring more investment bankers- that were already in place when he took over from Vikram Pandit last October. But that news- is not really news to many investors- its stock has doubled in the last year- and there may not be much more upside in the short term: SOUNDBITE: JIM SINEGAL, DIRECTOR, FINANCIAL SERVICES RESEARCH, MORNINGSTAR (ENGLISH) SAYING: "We are fairly neutral on the stock. When we look at the big banks now for the first time in a long time they look fairly valued. If you buy Citi or any of the big banks now you are not over paying." Sinegal adds that Citi's diversification-the fact that it's in so many different businesses - will serve as a good buffer to the impact of rising rates on its mortgage business.

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Citi's next challenge

Monday, July 15, 2013 - 01:29