Citi Stays Global But Picks Its Spots Under Corbat

Citigroup (NYSE:C) chief executive officer Michael Corbat is refining the company's global strategy while asking for patience as the company continues to wrestle with its large portfolio of bad assets.

The man who became Citi's CEO in October, following the ouster of Vikram Pandit, said Tuesday that despite recent improvements in U.S. real estate prices, the company is not going to be completing the sale of its pile of bad mortgages anytime soon.

"We still don't believe that the sale of mortgages is possible at prices that we consider acceptable," he said during a presentation at Citi's 2013 U.S. Financial Services Conference.

Tuesday's presentation marked one of Corbat's first public appearances since becoming Citi's leader. In it he laid out specific performance targets that he said investors can hold the company to. But the targets were for 2015, giving Citi some wiggle room in the short term.

Those financial targets include an efficiency ratio for Citicorp, the mid-50% range. Last year, Citicorp's efficiency ratio was 60%. The projections do not include Citi Holdings, the unit Citi set up in the wake of the financial crisis to dispose of hundreds of billions of dollars in unwanted assets.

To become more efficient, Citi will focus on driving its resources to the best opportunities globally, Corbat said. He suggested that the company sees the greatest potential for growth in fast-growing emerging markets including Mexico, India and China.

But Corbat also said that returns have been disappointing in 21 other markets. He did not identify them, but he said that Citi's operations in those countries need to be optimized and restructured, and he left the door open to an eventual exit them if insufficient progress is made.

Corbat cautioned that there is a risk that Citi will invest its resources too evenly between markets where the company has strong opportunities for growth and those where it doesn't. And he compared that risk to the mistakes Citi made during the U.S. housing bubble, which eventually led to the company's massive government bailout.

The remarks shed additional light on Citi's decision, announced in December, to limit or shutter its consumer operations in countries such as Turkey, Uruguay, Romania and Pakistan.

Even though Citi is retrenching in certain international markets, the company still sees its huge footprint as its greatest differentiator from other large banks.

Corbat sought to highlight that global omnipresence again Tuesday. Citi projects that 60% of the growth in high-income urban households between 2010 and 2025 will happen in emerging markets, he said.

"For Citi, global doesn't mean packing up a suitcase and traveling to where our customer needs to make a transaction," he said.

Citi's global credit card business is another area where the company needs to become more efficient, according to the CEO. He noted that Citi issues multiple card products in each market, and said the number of offerings will be reduced sharply.

"Our goal is to rationalize this portfolio," Corbat said, "taking out nearly 60% of the products."

Beyond improving Citi's efficiency ratio, Corbat established two other financial goals for 2015.

One goal is to reach a 10% return on tangible common equity, double what it was in 2012. The other goal is to achieve a return on assets of 0.9% to 1.1% by 2015. In 2012, Citi reported an ROA of 0.39%.

Fred Cannon, an analyst at Keefe, Bruyette & Woods, said he was disappointed that Corbat did not discuss the company's risk management strategy (though the issue was raised in a question-and-answer session). Cannon noted, for example, that Citi could improve its return on assets by taking on greater risk - a strategy carries obvious potential downsides.

"I wouldn't give [Corbat} an A-plus on the risk-management score," Cannon said.

Domestically, one of Corbat's top priorities is winding down Citi Holdings.

Corbat, who previously ran the unit, noted that more than $600 billion in Citi Holdings assets have been sold.

Still, with North American mortgages now accounting up 59% of the unit's $156 billion of assets, the pace of the wind-down could slow until those assets rise in value.

"We'll continue to sell smaller portfolios," he said. "And of course if the market environment changes such that a larger sale is possible, we'd absolutely take advantage."

Citi's shares rose 1.5% Tuesday, to close at $43.60.