Citigroup Vs Wells Fargo: Which Bank Stock is a Smarter Investment?

A few major players dominate the U.S. banking sector, among which Citigroup Inc. C and Wells Fargo & Company WFC are prominent. Both have remained the key competitors in the banking sector, and faced challenges and opportunities influenced by economic conditions and internal strategies.Of late, C and WFC have experienced significant stock declines due to market reactions to new tariff implementations, reflecting investor concerns about economic slowdowns and their impact on banking operations.Given such a backdrop, a closer examination of Citigroup and Wells Fargo’s fundamentals, growth prospects and hurdles will help determine which is a smarter investment option right now.Citigroup & Wells Fargo: Two Major Banks, Two Growth PathsC and WFC are taking different approaches to strengthen their operations and unlock growth opportunities.Citigroup has been betting on leaner, streamlined operations. The company is emphasizing growth in core businesses through restructuring operations internationally. In April 2021, C announced its plan to exit the consumer banking business in 14 markets across Asia and the EMEA. Since then, the company has exited consumer businesses in nine countries.Citigroup reached a milestone in December 2024 when it completed the separation of its institutional banking operations in Mexico from the consumer, small business and middle-market segments. These moves by the bank are likely to free up capital to invest in higher-return segments like wealth management and investment banking.Conversely, Wells Fargo has made strengthening risk management and compliance infrastructure its central goal. Under the leadership of CEO Charlie Scharf, the company is making notable strides in strengthening its compliance framework.Per a Reuters report from March, investors and analysts are more optimistic that the asset cap (imposed in 2019 after the fake account scandal) on Wells Fargo will be lifted this year, following the bank's closure of five regulatory actions in 2025 and eleven since 2019. Lifting this asset cap would be a major step, enabling Wells Fargo to fully leverage its size and capabilities, especially in the highly competitive lending space.C & WFC’s Expense Management InitiativesAs the banking industry adapts to rising expenses, shifting customer preferences, and ongoing digital disruption, Citigroup and Wells Fargo are sharpening their pencils — but their approaches to expense management reflect two different paths.Citigroup is not just trimming around the edges; it is undergoing a full-fledged transformation under the leadership of CEO Jane Fraser. The company is overhauling its operating model, simplifying reporting structures and streamlining operations.The transformation process included an organizational restructuring that replaced the reportable segment with five new ones. The reorganization trimmed management layers. In January 2024, C announced the plan to eliminate 20,000 jobs as part of its broad-scale restructuring effort over the next two years.Driven by these efforts, management expects 2025 and 2026 expenses to be lower than the $56.4 billion reported in 2023.Alternatively, Wells Fargo is taking a more balanced approach to its operations. While the bank is reducing headcount and streamlining processes, it is also investing in its branch network and upgrading digital tools to augment the customer experience. This allows the bank to maintain a focus  on cost management while enhancing customer service and accessibility.WFC is being more deliberate about branch location strategy, as the number of branches declined 3% year over year to 4,177 in 2024. Unlike Citigroup, WFC is keen on updating its branches and has already upgraded 730 of them last year. The company plans to update all the branches in the next five years.With such strategic efforts, Wells Fargo expects $2.4 billion of gross expense reductions in 2025, led by efficiency initiatives.Citigroup & Wells Fargo’s Impressive Capital DistributionC and WFC are showcasing strong capital distribution programs that reflect confidence in their liquidity and earnings stability. The companies are required to undergo annual stress tests conducted by the Federal Reserve before announcing any capital distributions.Citigroup and Wells Fargo hiked their quarterly dividends in July 2024. Citigroup increased its quarterly dividend 6% to 56 cents per share. In the past five years, the company has raised its dividend twice. Similarly, Wells Fargo raised its dividend 14% to 40 cents per share from its prior payout. It has raised its dividend five times in the past five years.At present, C has a dividend yield of 3.81% and WFC has a yield of 2.58%. Dividend Yield Image Source: Zacks Investment Research Citigroup also has a share repurchase plan. On Jan. 13, 2025, the bank's board of directors approved a $20-billion common stock repurchase program with no expiration date. The bank aims to repurchase $1.5 billion of its common stock in the first quarter of 2025. Then again, in July 2023, WFC’s board of directors authorized a share repurchase program worth $30 billion. As of Dec. 31, 2024, Wells Fargo had remaining board authority to repurchase up to $7.3 billion of common stock.C & WFC’s Near-Term ConcernsCitigroup and Wells Fargo’s performance is heavily influenced by the Fed’s interest rate cuts and overall economic growth.The Fed lowered the interest rates by 100 basis points in 2024 in response to moderating inflation and softening growth. However, rates have been steady since then, signaling caution amid growing macroeconomic uncertainty. The uncertainty surrounding Trump’s tariff plans is expected to slow down the economy, reduce investment and weigh on consumer spending. These factors raise the risk of a recession, adding complexity to the Fed's goal of bringing inflation down to its 2% target.Subdued economic growth is likely to suppress loan demand, particularly in areas like commercial lending and mortgages. As demand for loans weakens, C and WFC could see lower NII growth, a key driver of bank earnings.Additionally, the expectations of higher for longer interest rates are likely to cause a spike in delinquency rates, mainly in the consumer loan portfolio. This will, thereby, hurt both companies’ asset quality.Citigroup & Wells Fargo’s Stock Performance & ValuationIn the past six months, WFC shares have gained 5.2% against Citigroup’s decline of 8.8%. In comparison, the industry has moved down 1.7% and the S&P 500 Index has slipped 12.8% in the same time frame. Price Performance Image Source: Zacks Investment Research In terms of valuation, Citigroup’s trailing 12-month price-to-earnings (P/E) ratio is 7.40X, while Wells Fargo’s is 10.13X. Both stocks are trading at a discount compared with the industry’s trailing 12-month P/E ratio of 10.59X.Price-to-Earnings F12M Image Source: Zacks Investment Research Wells Fargo does seem pricey. However, its valuations reflect its high growth expectations and improving profitability. If the company sustains its execution, the premium could be warranted.How Do Estimates Compare for C & WFC?The Zacks Consensus Estimate for Citigroup’s 2025 sales and EPS implies year-over-year increases of 0.2% and 16.5%, respectively. The EPS estimates for 2025 and 2026 have moved lower to $7.39 and $9.17, respectively, over the past 60 days.C Earnings Estimate Trend Image Source: Zacks Investment Research The Zacks Consensus Estimate for WFC’s 2025 sales and EPS implies year-over-year growth of 2.7% and 8.6%, respectively. EPS estimates for 2025 and 2026 have been revised downward over the past 60 days to $5.83 and $6.80, respectively.WFC Estimate Revision Trend Image Source: Zacks Investment Research Find the latest earnings estimates and surprises on Zacks Earnings Calendar.End Note on C & WFC AnalysisWhile Citigroup offers profound value with its low forward P/E ratio and higher dividend yield, the bank remains in the middle of a complex overhaul plan. Though its restructuring strategy is encouraging, it carries execution risk and near-term uncertainty, especially as global economic headwinds and interest rate fluctuations obscure the outlook.In contrast, Wells Fargo has been making solid progress on multiple fronts, resolving past regulatory actions, updating its branch network, investing in digital capabilities, and managing expenses prudently. A potential catalyst materializing in the possible removal of the asset cap could significantly increase its capacity to grow its lending. This will likely act as a major turning point for both valuation expansion and long-term growth.Citigroup, although attractively priced, may remain range-bound until clearer progress emerges from its transformation strategy.On the contrary, despite WFC’s premium valuation, it is currently the smarter investment. With stronger execution, a more balanced strategy and rising profitability expectations, Wells Fargo is better positioned to deliver consistent returns and navigate the evolving banking landscape.Both C and WFC currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Wells Fargo & Company (WFC): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks