Citigroup needs to channel boardroom aggression
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
CitigroupĀ boss Mike Corbat needs to channel some of the aggression from his boardroom. At $2.6 billion, the mega-bank is alone falling short of estimates among peers who have reported fourth-quarter earnings so far. It leaves Citi with a weak return on equity and market valuation. Corbat, who rose to power by way of a harsh coup, canāt rely on cost cuts. Heāll have to scrap for revenue.
The bank wasnāt alone struggling at the end of 2013. Core earnings at JPMorganĀ and Wells FargoĀ each fell 3 percent from the third quarter. And Goldman SachsĀ joined Citi with a disappointing time in fixed income trading. The unitās top line for both fell by 15 percent from the same period in 2012.
Each institution, though, managed to keep on the right side of Wall Street guesstimates. It may have been dumb luck, providing analysts with more unsubtle hints about performance or simply by not having created as much exuberance about improved performance earlier in the year.
Either way, the miss leaves Citi trailing rivals on a couple of important metrics. At just 5.3 percent its annualized return on equity for the quarter is the lowest of the big banks that had published results by Thursday. Wells Fargo and JPMorgan were above the all-important 10 percent that stands as a rough mark for where banks cover their cost of capital. Even Bank of America, which has typically trailed nearly all, beat Citi.
The weekās news and stock movements also have shunted Citi back to the bottom of the book-multiple league table. It now trades at four-fifths of its breakup value, swapping positions with BofA.
Overall annual results, including a 7.1 percent equity return, arenāt as dire. Nevertheless, this is the second consecutive quarter Citiās results have disappointed shareholders. Accelerating cost cutting, as Corbat has done, is useful ā usually only if it covers an earnings shortfall, though, as in Goldmanās case, or at least avoids accompanying a worse relative performance. It is becoming more apparent that itās time for Citi to be more competitive about the top line.