Citigroup’s boss, Michael L. Corbat, needs to channel some of the aggression from his boardroom.
With fourth-quarter earnings of $2.6 billion, the bank is alone in falling short of estimates among peers who have reported earnings for the quarter. It leaves Citigroup with a weak return on equity and market valuation. Mr. Corbat, who rose to power by way of a harsh coup, cannot rely on cost cuts. He will have to scrap for revenue.
The bank was not alone in its struggles at the end of 2013. Core earnings at JPMorgan Chase and Wells Fargo each fell 3 percent from the third quarter. And Goldman Sachs joined Citigroup with a disappointing performance in fixed-income trading. The unit’s top line for both fell 15 percent from the fourth quarter of 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 not having created as much exuberance about improved performance earlier in the year.
Either way, the miss leaves Citigroup trailing its rivals in a couple of important areas. At just 5.3 percent, its annualized return on equity for the quarter was the lowest of the big banks that 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 the big banks, beat Citigroup.
The week’s news and stock movements have also shunted Citigroup back to the bottom of the book-multiple league table. It now trades at four-fifths of its breakup value, swapping positions with Bank of America.
Overall annual results, including a 7.1 percent return on equity, are not as dire. Nevertheless, this is the second consecutive quarter that Citigroup’s results have disappointed shareholders. Accelerating cost-cutting, as Mr. Corbat has done, is useful — usually only if it covers an earnings shortfall, though, as in Goldman’s case, or at least avoids accompanying a worse relative performance. It is becoming more apparent that it is time for Citigroup to be more competitive about the top line.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.