The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Stephen Gandel

NEW YORK, May 6 (Reuters Breakingviews) - Citigroup C.N would be cleaner by airing its dirty laundry. Since the mega-bank mistakenly sent $900 million, 100 times more than intended sum, to a group of hedge funds in 2020, its shares have traded at a wider discount to rivals, partly because of the expenses involved to fix error‑prone systems. Profitability is on the rise again, however, and CEO Jane Fraser intends to divulge higher targets for next year at this week's investor presentation. Regularly disclosing sloppy errors would help even more.

Fraser has tidied up the bottom line. Citi’s return on tangible common equity, an important industry measure of earnings, exceeded 13% in the first quarter, up from 9% a year earlier. It narrowed the gap with Wells Fargo WFC.N and Bank of America BAC.N, which generated 16% and almost 15%, respectively.

Clumsy close calls are a big reason for the lingering valuation shortfall. Citi trades at 1.1 times book value while BofA fetches 1.4 times and Wells Fargo 1.8 times. Blunders occur at all banks, but Citi is renowned for them. In addition to mistakenly wiring far too big an interest payment to Revlon lenders nearly six years ago, recent bloopers also include selling $1.4 billion of stock instead of the intended $58 million, and crediting a Brazilian customer’s account with $81 trillion rather than the $280 that was due. Many of these boners stem from Citi’s patchwork of legacy computer systems, stitched together over decades of dealmaking.

Fraser, who took the top job in 2021, has made progress fixing those systems. How much is unclear. Operational risk can be hard to quantify, but it's not impossible. Keeping tabs on "near-miss" events holds promise for improving controls at large banks, just as it has for air traffic controllers and toxic waste managers, according to 2020 research by risk management professionals Andrea Giacchero and Jacopo Moretti. Another study found that when near-misses are interpreted as dodged disasters, "people illegitimately underestimate the danger of subsequent hazardous situations and make riskier decisions."

Citi already tracks such missteps and analyzes them internally. Being open about how many are occurring and publishing summary findings would provide clear evidence of the efforts to improve. The danger is that the tally is rising, but even then it would create greater accountability and pressure from stakeholders to iron out weak spots. Before long, the valuation stain would come out in the wash.

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CONTEXT NEWS

At a planned investor day on May 7, Citigroup will lay out new return targets and lift them beyond the bank's 2026 goals, Chief Executive Jane Fraser told Reuters in an interview published on May 5.