Morgan Stanley says Citi’s “crown jewel,” its services segment, is worth half the bank’s value

This segment, which Citi calls treasury and trading solutions, such as liquidity management, and securities services such as custody and fund services, processes about $5 trillion in transactions daily for clients such as Microsoft, Walmart and Stripe, according to the Morgan Stanley report.

“The bank views services as its crown jewel at the heart of Citi’s global network,” wrote report authors and equity analysts Betsy L. Graseck and Ryan Kenny.

The authors found that Citi’s services segment’s return on average tangible equity (ROTCE) – a metric that divides annualized net income by average monthly tangible shareholders’ equity – has ranged from 21 to 23 percent over the past three quarters, the highest of any Citi segment.

Citi believes that continued volume growth in this segment can offset the headwinds from lower interest rates. “In particular,” say the report’s authors, “Citi underscored the expectation of continued strength in cross-border transactions, US dollar clearing volumes, commercial card volumes and trade credit.”

Despite the higher-than-expected return, Citi maintained its ROTCE target of about 11 to 12 percent through 2026, with revenues growing 4 to 5 percent annually.

Earlier this week, Citi hosted a full day of service-only presentations, familiarizing Wall Street with what the Wall Street Journal described as “a collection of features that most large companies could not do without” and that could increase the value of Citi stock if accounted for differently. While Citi shares have risen 14 percent this year to $60.62, analysts at Oppenheimer and Wells Fargo have recommended the stock as a buy with price targets of $86.00 and $85.00, respectively.

Last week, Citi’s acting CIO said Assets He expects a quieter-than-expected economy to help mitigate the impact of the rapid introduction of artificial intelligence on the labor market.