Citigroup, the third largest US bank by market-cap, is scaling back illiquid investments in order to comply with new rules that limit risk-taking by banks. It's considering selling a USD 1 billion stake in a private equity fund. 

Saxo Bank's Peter Garnry says that while short term this move may be "a drag" on performance because it has such a high return on equity, there are plenty of opportunities to get a return elsewhere for Citigroup. He explains the company needs to change its business model, and this move shows us it's on the right track, says Peter.

Following the news, Citigroup’s shares closed to their highest since early 2009. Peter says the price action is very interesting and signals further upside but adds the fundamentals are the primary driver behind his decision to raise the stock to positive.

Currently, the expected return on equity over the next 12 months is 8.2 percent compared to 7.1 percent for Bank of America, putting it ahead of its competitors.

He therefore thinks that based on the return on equity and other fundamentals, Citigroup's stock has the potential to go up 20 percent and that at the moment it's "definitely undervalued". 

Read more about Peter's thoughts on the future of investment banking here:

http://www.tradingfloor.com/posts/goldman-sachs-morgan-stanley-win-future-1911505755