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Citi Wins Fund Admin Mandate

Zacks Equity Research

Citigroup Inc. (C) has won a mandate to provide administration services for Credit Suisse AG’s (CS) asset management division. Citi will offer a complete suite of middle office, custody and hedge fund administration services to support a part of its US-based alternative investments business.

The deal will add $28 billion of US-based alternative investment assets under Citi’s assets under administration. A part of the middle office operations within Credit Suisse’s Asset Management division will be fully transitioned onto Citi’s service platform.

The service will be offered by Global Transaction Services, a division of Citi’s Institutional Clients Group. This division offers integrated cash management, trade, and securities and fund services to multinational corporations, financial institutions and public sector organizations around the world. As of the fourth quarter of 2011, it had $12.5 trillion in assets under custody.

Last month, Citi reported fourth-quarter 2011 earnings per share of 38 cents, which missed the Zacks Consensus Estimate of 50 cents. The company’s earnings per share also deteriorated from the prior quarter’s $1.23 and year-ago quarter's 40 cents.

With the weakness in the economy as a whole and fundamental stress on the banking sector in particular, top-line headwind continued at Citigroup. Expenses also increased in the quarter. However, as expected, the negatives were partly offset by an improvement in credit quality and the company reported a drop in provisions for credit losses.

Going forward, we believe such a mandate win will help in augmenting the company’s top line. Clients can leverage Citi's local market expertise and global reach to obtain value across the entire investment value chain.

Citi’s global footprint and attractive core business are encouraging. It is also among the best reserved banks. While we believe that investments and efficiency savings will help in garnering a solid market share, volatile equity markets, weak loan demand, low liquidity and a tough regulatory environment remain our major concerns.

Citi currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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