Citi downgraded, Wells Fargo upgraded at BMO as pair trade closed – Seeking Alpha
Citigroup (C +1.1%) is downgraded to Market Perform from Outperform while Wells Fargo is (WFC -1.4%) upgraded to Market Perform from Underperform at BMO Capital, which also ends its pair trade call of going long C and short WFC.
BMO says the valuation gap between C shares and WFC “has narrowed appropriately… from 4.0x at its peak (on Feb. 22, 2016) to only 0.4x today. Following CCAR results and Citi’s successful investor day, we do not foresee further catalysts” to support the pair trade.
The firm first suggested the pair trade in February 2015, convinced WFC’s premium valuation and Citi’s discounted valuation would converge over time; the trade was a winner, as Citi has surged 36.8% since the trade was first suggested, while WFC are 1.2% lower.