Has Citigroup Forgotten How to Be a Bank?

Again, Citigroup C has let down its shareholders. The bank's earnings declined by 11% in Q4 2011, according to its earnings release on Tuesday morning, and its revenue also fell by 7% compared to last year results. Earnings per share were down from 43 cents to 38 cents a share. While analysts had expected weak results, Citigroup's underperformance was still a disappointment. The bank's stock was down over 5% in pre-market trading, falling past the $30 mark that the bank has struggled to maintain. This bad year-on-year performance has plagued Citigroup since the subprime mortgage crisis. Despite its large presence in both investment and commercial banking industries, the bank has not been able to maintain strong profits even while Wells Fargo WFC is showing strong signs of recovery. Yet CEO Vikram Pandit is more interested in pointing fingers elsewhere. "Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment," he said of the results. This not too veiled language translates to more downsizing for the bank. The bank may begin to sell off assets in a time when the U.S. economy is showing a few signs of recovery--a rather short-sighted decision. The bank did see a growth in loan activity not unlike Wells Fargo's increase in mortgage activity. Citigroup's loans grew by 14% and now account for an eye-watering $465.4 billion of the bank's core franchise, but declined 25% to $181.8 billion in Citi Holdings. This is because the bank is actively trying to downsize its Citi Holdings business. Pandit said that the bank is "increasingly focused on driving earnings through our core franchise and beginning to return capital to our shareholders this year," so a contraction of Citi Holdings is to be expected. The Holdings arm of the bank also saw revenues decline by 25% due to a decline in its assets. In the previous quarter, Citi Holdings saw a decline of 25% due to Citigroup's active divestment in that portion of its business. Much of this is due to a transfer of retail partner cards to Citicorp, the main franchise of the bank. It remains to be seen if the market concludes that the pre-market drop is over-exaggerated, and hope that growing demand in mortgage revenue will save the bank. However, hope springs eternal and the good news from Wells Fargo contrasted with Citigroup's disappointment points to a core different in the way these two banks have developed in the past decade: Citigroup became a much more aggressive investor in exotic speculation while Wells Fargo has maintained a bigger focus on retail banking. Thus Wells Fargo is in a stronger position to profit from a growth in things such as mortgages than Citigroup. Bullish investors may conclude that Citigroup is becoming a bargain, but it is still far from its 52 week low of 21.40. There may be more room for the stock to decline, although at the beginning of trading it recovered slightly to around 29.55, or a drop of around 4%. The stock's P/E ratio is lower than Wells Fargo, so it is certainly cheaper than the other stock, but questions remain on whether Citigroup's return to profitability and growth can be sustained on a longer scale while it divests and contrasts, all the while pointing to a weak economy. Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.