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Citigroup fined $1 million for overcharging of customers

In the first-week of January, the stock of banking and financial institution Citigroup Inc (NYSE: C) hit a new 12-month high of $61.61. The overall rally in the banking stocks, triggered by the expectation of huge demand for funding of infrastructure projects, pushed the share price higher. The Fed rate hike and attractive valuation also aided the stock’s rally.

However, for the reasons mentioned below, we anticipate a short-term price correction in the stock.

Last Thursday, New York Attorney General Eric Schneiderman slapped a penalty of $1million against Citigroup, following an investigation that began in 2012.

The scandal came to limelight when a Westchester County resident complained that the bank had charged her investment account more than what she had negotiated earlier on. When it was found out that the bank had overcharged the customer’s account, the scope of investigation was expanded. Ultimately, the investigators found evidence of overcharging in as many as 47,000 accounts. The bank had already reimbursed $22.5 million to the accounts of customers.


After going through the broader tax proposal of Republicans, Jason Goldberg – an analyst at Barclays – has estimated that Citigroup would likely benefit only half as much as some of its peers. The reason is that the bank earns about 50% of its profit overseas.

The Citigroup earnings are expected to increase only 11% due to tax cuts, compared with an estimated 21.4% gain for JP Morgan.

It was also pointed out that the bank may have to trim the value of an income tax asset by as much as $4 billion. The bank is said to hold the asset as an outcome of the losses it suffered from the 2008 financial crisis. Furthermore, analysts argue that the bank is more exposed to the protectionist policies of Trump.

The Republicans in the US House of Representatives have called for bringing down the tax rate to 20%, from the current 35%. During the election campaign, Trump had promised to bring the tax rate to 15%. Banks are expected to benefit more than other industries due to the proposed tax cuts as they do not receive any other deductions like manufacturing industries do. The detailed analysis shows that investors would be more attracted towards the stocks of JP Morgan (JPM), Wells Fargo (WFC), and Bank of America (BAC), which are likely to gain more from the proposed tax cuts.

Saul Martinez, an >analyst at UBS, has double downgraded Citigroup’s stock from “buy” rating to “sell” rating, with a target price of $58. Thus, we forecast the stock to remain bearish in the short-term.

The price chart shows that sellers are active near the level of 60.10. The descending slope of the stochastic oscillator points to a loss of momentum in the stock. Thus, there exists a high probability of a downtrend in the stock.

Citigroup Stock Price: January 16th 2017

Citigroup Stock Price: January 16th 2017

A binary trader can trade a put option or its equivalent (low or below contract) to gain from the probable erosion of the share price. An entry into the suggested trade should be done when the underlying stock of Citigroup trades above $59 in the exchange. The trader should pick an expiry date in the last week of January.

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