1 Number to Watch from Citigroup as 2014 Rolls On

Citigroup (C 1.41%) 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 (BAC -0.21%), JPMorgan Chase (JPM 0.06%), and Wells Fargo, Citigroup performed reasonably well last year:

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.