NEW YORK ( TheStreet) -- Citigroup ( C - Get Report) CEO Michael Corbat on Tuesday said the bank may exit or scale back operations in 21 unprofitable markets as it seeks to deliver on new profitability targets.

The third largest U.S. bank will seek to achieve a return on tangible common equity of 10% by 2015, rising from an adjusted return of 7.9% in 2012.

Citigroup hopes to accomplish this through a combination of modest revenue growth, efficiency improvements and by reducing the drag on profitability from the non-core operations that make up Citi Holdings.

Corbat also targeted a return on assets of 0.90% to 1.10% for the company, up from an adjusted 0.62% in 2012.

"You are what you measure," Corbat told investors at the Citi Financial Services Conference. "You, our investors can hold us accountable and measure us against our results."

Shares of Citi were up nearly 2% in afternoon trading.

Exiting Unprofitable Markets

Efficient allocation of resources will be the first of three priorities for Citigroup. The bank will continue to invest in high-growth emerging markets such as Mexico, China, Hong Kong, Singapore and India, which contribute about 30% of its revenues.

It will also continue to optimize its businesses in developed markets such as the U.S. and U.K, which account for more than half of its revenues, but which have seen a ballooning of expenses in the wake of the financial crisis. "This is a concentrated opportunity where we can make real progress in efficiency and return," said Corbat.

The company will exit or scale back significantly its presence in 21 markets that have produced a return on assets of as low as 0.40%, which Corbat called "unsustainable." The CEO did not elaborate on which markets Citigroup would exit.

Last year, the bank said it would exit unprofitable markets such as Paraguay, Uruguay, Romania, Turkey and Pakistan. Citi continues to have institutional client businesses in these countries but does not see a future in consumer businesses.

In its securities and banking business, Citi will continue to remain vigilant on headcount and compensation. "If we don't execute on our plan we will not be afraid to take further action on restructuring that business," Corbat added.

Freeing Tied-Up Capital

The other two priorities outlined in the presentation include winding down Citi Holdings and utilizing the massive $55 billion deferred tax asset (DTA) before it expires.

About a quarter of the company's capital supports Citi Holdings, the "bad bank," which has been in wind-down mode since 2008.

Meanwhile, the bank also needs to set aside $40 billion in tangible equity to support its DTA, which cannot be counted for as regulatory capital under Basel III capital rules.

"About a third of capital is not available to generate returns that you expect and deserve," Corbat said. "We are fighting with one hand tied behind our back."

Corbat said that the bank will continue to wind down Citi Holdings, which now is mainly made up of U.S. mortgage loans. The unit signed a deal to sell $1.5 billion in mortgages, but Corbat warned that the wind-down will be gradual.

"Despite improvement in housing prices, we still don't believe sale of large scale mortgages is possible at prices that is acceptable," he said. We have no desire to sell these assets at a sizeable liquidity discount."

Citi has been cautious about the recovery in housing unlike its banking peers and has yet to release any of its $8.5 billion in mortgage loan loss reserves, which will be key to reducing losses at Citi Holdings.

Unless Citi materially increases its earnings, it will be unable to utilize the DTA and free tied-up capital for an increased return to shareholders.

Analysts have largely viewed Citi's new CEO favorably, with many anticipating higher returns from Corbat's restructuring efforts.

However, while Corbat may be scoring a few points with shareholders as he sets ambitious return targets, the real test might be how the bank performs on its annual stress test, the results of which will be announced by the Federal Reserve on Thursday.

-- Written by Shanthi Bharatwaj in New York.

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