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Citigroup needs to channel boardroom aggression

Citigroup 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, can't rely on cost cuts. He'll have to scrap for revenue.

The bank wasn't alone struggling at the end of 2013. Core earnings at JPMorgan and Wells Fargo each fell three per cent from the third quarter. And Goldman Sachs joined Citi with a disappointing time in fixed income trading. The unit's top line for both fell by 15 per cent 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 per cent 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 per cent 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 week's 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 per cent equity return, aren't as dire. Nevertheless, this is the second consecutive quarter Citi's results have disappointed shareholders. Accelerating cost cutting, as 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's time for Citi to be more competitive about the top line.