According to The Wall Street Journal, ValueAct has built the position over the past four to five months, disclosing an $80 million stake in Citigroup as of the end of December. That amounts to about a 0.7 percent stake.
Citigroup has a market value of $175 billion and is the fourth-biggest U.S. bank by assets.
In a quarterly letter to its investors, ValueAct revealed some suggestions for the bank, such as increasing its plan to return cash to shareholders via buybacks and dividends from about $40 billion to $50 billion.
For its part, a spokesperson from Citigroup said the bank has “been having constructive conversations with ValueAct and welcome[s] them as investors.”
The investor letter also stated that Citi’s advantage is the “old-fashioned treasury management for global businesses” that positions it well in foreign exchange and debt underwriting for multinational clients.
That, according to ValueAct, makes the bank indispensable to clients while creating stable profits.
“We believe that in this era of banks, the winners and losers will be decided by strategic focus, customer-centric innovation, and capital allocation — as opposed to the product breadth, appetite for risk and investment in trading talent that defined competition in the pre-crisis era,” ValueAct wrote to its investors.
While other activist investors publicly agitate for change, ValueAct considers itself a friendly counselor to management, even guiding technology companies — including Microsoft and Adobe — through changing times.
With that in mind, ValueAct believes the financial industry is at a crossroads, much like the one the technology industry faced when the market started to shift from personal computers to cloud computing.
And Citi has been falling behind its competitors in recent years. While its shares have gained about 50 percent, including dividends, in the past five years, JPMorgan Chase & Co. and Bank of America have both gained more than 150 percent.
In addition, Citi's return on equity was 9.7 percent in the first quarter — an increase from 7.4 percent the previous year, but still behind the 13 percent average of its rivals.