Richard Pzena Is Bullish On Citi

Richard Pzena of Pzena Investment talked on CNBC about Citigroup C and its current obstacles to grow earnings. He likes the financials and thinks that there is a lot of room for these stocks to trade higher and the downside is limited, in his opinion. Citi has three issues that are depressing its earnings, thinks Mr. Pzena. Low interest rates are hurting profitability of Citi's deposit gathering franchise. The costs to gather deposits are high for banks and the opportunity to make money on these deposits are non existing, believes Pzena. He added that Citi's earnings would get a big boost if interest rates increase and the deposit spreads go back to their historical norms. Depressed trading volumes are approximately 30% to 40% below their historical norms and that is a big problem for investment banking and trading arms of big banks. Citi is not an exception and this would have to change for banks to increase their earnings. Finally, the expenses that banks are incurring are above historical norms and dealing with a regulatory change and pressure and litigation are inflating the expenses. Without the three obstacles mentioned above, Citi would make $8 per share and it is currently earning $4. Mr. Pzena believes that owning the stock right now offers a good trade off, because the potential growth in earnings offers a huge upside potential and if the obstacles don't go away, the stock currently trades below its book value and it earns 7% on that value.