1 Number to Watch from Citigroup as 2014 Rolls On

Citigroup (NYSE: C  ) had a rough start to 2014. But investors need to keep an eye on one number to gauge how well the bank is positioning itself not just this year, but for the future.

The strong improvement
A bank's efficiency ratio measures how much each dollar of revenue costs the institution. Like a golf score, the lower, the better. As shown in the chart below, compared to peers Bank of America (NYSE: BAC  ) , JPMorgan Chase (NYSE: JPM  ) , and Wells Fargo, Citigroup performed reasonably well last year:

Full Year 2013 Profitability

Bank

Return on
Average Assets

Return on Equity

Efficiency Ratio

Wells Fargo

1.51%

13.9%

58.3%

Citigroup

0.73%

7%

63%

JPMorgan Chase

0.75%

9%

72.9%

Bank of America

0.53%

4.6%

77.1%

Source: Company Investor Relations.

Part of the reason behind this was the massive legal settlements both JPMorgan and Bank of America faced, but Citigroup's performance was an improvement over its 72% efficiency ratio in 2012.

A recent presentation from Citigroup Chief Financial Officer John Gerspach revealed why this is a number critical to Citigroup's future success.

The key number to watch
When considering recent years' results for Citicorp -- which exclude legacy operations that it is slowly but surely unwinding -- Gerspach revealed that Citigroup's many markets have a wide variation when it comes to profitability:


Source: Company Investor Relations.

As you can see, the "Optimize/Grow" area -- which includes the United States and the U.K. -- represented more than half of the revenue Citigroup brought in last year, yet undoubtedly had room for improvement. However, a bit of back of the envelop math would suggest the efficiency ratio drop from 65% to 62% added $1.3 billion to the bank's bottom line last year.

And while the improvement in both markets is an encouraging sign, Gerspach noted that "optimize markets still create a drag on our overall efficiency, and in order to hit our mid-50%s efficiency ratio target for Citicorp in 2015, there is further work to be done across the consumer and institutional businesses."

He highlighted that across its various business segments, the bank will continue to focus on the major cities in which it operates as it seeks to focus the core markets it operates to deepen relationships with its existing clients.

With all that in mind, knowing the efficiency ratio of Citigroup improved to 60% in the first quarter -- and 57% for its core operations of Citicorp -- investors may take the glass half-full approach and see the bank is clearly executing on its initiatives.

However it's also important to note that the 57% ratio of Citicorp was actually slightly worse than the 56% seen in the first quarter of 2013.

While a worsening of just 1 percentage point shouldn't be a red flag, the change makes clear this will be a critical metric to monitor as the year progresses. There are a number of things that give me a lot of hesitation with Citigroup, but execution on its core cost-cutting efforts will be reason for encouragement. 

Citigroup + Apple? This device makes it possible.
Citigroup has a few compelling things going for it, but there is one stock that could bring massive change. You see, Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

 


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3009429, ~/Articles/ArticleHandler.aspx, 8/21/2014 10:35:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement