Reuters - At a meeting with 300 senior Citigroup officials in the first week of February, Chief Executive Michael Corbat said the bank needed to focus on two things above all else this year: expenses and efficiency.

The bank's first quarter results on Monday showed just how much work Citigroup executives have ahead of them in those areas.

In Citigroup's main businesses, revenue fell 3.5 percent in the quarter while operating expenses eased only 1.5 percent compared with a year earlier, the bank said. It still needs to cut another 3.5 percent, or $1.5 billion, from its annual operating expenses to meet its own 2015 targets for efficiency, according to Reuters calculations.

The company's expenses are too high given its weak revenues, said Gary Townsend, a longtime bank stock investor who owns Citigroup shares and formerly ran Hill-Townsend Capital.

High costs have bedeviled Citigroup for a decade. For years, the bank's problems were mainly linked to its failure to fully integrate businesses built up over years of acquisitions.

That integration is mostly done. But now the bank, like other major American banks, is struggling to cut costs as it seeks to cope with the expense of complying with a welter of new laws and regulations following the financial crisis.

Executives at Citigroup, which had to be rescued by the U.S. government three times during that crisis, in the past 18 months have already eliminated $2.8 billion from the company's overall annual expense base through layoffs and assorted reorganization and productivity steps, Chief Financial Officer John Gerspach said on a conference call with analysts. A big chunk of that stems from the company's December 2012 announcement that it was eliminating more than 11,000 jobs.

But of the $2.8 billion, only 20 percent is going to the bottom line, Gerspach said.

Some 40 percent is being spent to comply with regulations and control risks. The other 40 percent is covering other expenses and the added costs that come with investments, such as Citigroup's purchase of the Best Buy store group's credit card portfolio.

For Citigroup, cost cutting is particularly difficult, because it operates in more than 100 countries, making it the most international of the U.S. banks.

Being global hurts the bank on at least two fronts: it makes complying with U.S. laws more difficult, and it gives the bank dozens of other regulatory regimes to deal with.

The Federal Reserve recently rejected Citigroup's request to pay higher dividends to shareholders and buy back more shares, citing the bank's inability to properly forecast how any markets and economic difficulty would hurt its many businesses globally.

Gerspach said the bank needs to devote more resources to deal with the concerns raised by the Fed. As it is now, Citigroup has more than 500 people who spend more than half of their time on the bank's capital requests with the Fed, and somewhere between 1,200 and 1,500 other people that spend at least some of their time on the process.

Citigroup has so much work to do in fixing this that it is not going to reapply to the Fed for permission to pay an increased dividend this year, and is instead focusing on a new application for 2015, Corbat said on the conference call.

Meanwhile, the bank has regulatory and control problems overseas. In Mexico, Citigroup is reviewing its entire control structure after a series of problems there. In February, the bank said its Banamex unit lost $400 million from making loans to a supplier to Mexican oil company Pemex. Those loans turned out to be bogus, and Mexico's attorney general is investigating how Pemex supplier Oceanografia allegedly defrauded Citigroup.

To make matters worse, Gerspach said on Monday that the bank had discovered fraudulent loans made to another Pemex supplier. He declined to identify the company, but said the loans involved would be somewhere around $30 million, and the losses would be much lower.

Citigroup's Banamex unit also lost some $80 million from bad loans to homebuilders that executives in New York had nixed but that Mexican executives made anyway.