What's Next for America's Largest Bank?

Case Background: Will Citigroup, America's largest banking institution, really take over Nikko Cordial Corp.? Yes, according to a variety of Japanese publictions, including the Asahi and Yomiuri newspapers, as well as the Mainichi, Nikkei and Sankei. To avoid being delisted from the Japanese stock exchange, the embattled brokerage firm is hoping to elicit the assistance necessary to improving operations. What's in it for Citigroup? The acquisition of Nikko Cordial will increase Citigroup's Asian presence. If it can turn Nikko Cordial around, the potential gain is tremendous. Discussion: The deal is estimated to cost around 300 billion yen ($2.48 billion USD). This is almost chump change to a giant like Citigroup. But is it a wise move? At this point, it's difficult to say. While Citigroup could absorb a substantial loss if things didn't go as hoped, the same may not be said of all its shareholders. Citigroup's P/E ratio is currently at a reasonable 12.48, but this must, as always, be weighed against other factors.

Conclusion: What should the wise investor do? Investing in Citigroup may be a good idea at this point--a chance to get in on the ground floor of its Asian expansion opportunity. However, such a strategy should be weighed carefully, considering as many factors involved as is practical. Disclaimer: P/E ratios are a quick way to sort out the leaders within the same sector. Never use a P/E ratio exclusively to make an investment. Remember, a P/E ratio is measured using historical trailing earnings for the previous 12 months and does not necessarily indicate strong future earnings. P/E ratios, when used with other market value ratios, can help investors to make consistent returns and to minimize losses. Various interpretations of a particular P/E ratio are possible: 0-13 - Either the stock is undervalued or the company's earnings are thought to be in decline. 14-20 - For many companies, a P/E ratio in this range may be considered fair value. The average U.S. equity P/E ratio is usually around 14, which means it takes about 14 years for a company's stock to earn back its full purchase price. Average P/E over the entire market is a good indicator of overall market strength. 21-28 - Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. 28+ - A company whose shares have a very high P/E ratio either really does have an exceptionally rosy future or the stock may be the subject of a speculative bubble. A company with no earnings has an undefined P/E ratio. Financial information was provided by http://finance.yahoo.com 02/24/2007) This investment article was edited by http://www.proof-reading.com; copyright © 2006 PE-Ratio.com. All rights reserved.