NEW YORK (CNNMoney.com) - JPMorgan wants to give Citigroup a real run for its money by revamping its volatile investment banking operation, but it promises to be an uphill battle.

Speaking at the company's annual investor day presentation -- its first since merging with Bank One in 2004 -- JPMorgan (Research) executives conceded that the investment banking unit's performance last year was disappointing, particularly in the fourth quarter, as overall flat earnings and a 28 percent decline caused an uproar on Wall Street. But the company expects higher trading revenues in 2006 and beyond as it takes an aggressive stance on hiring and shifts the focus to better capital reallocation and investments.

"We haven't invested in our franchise or business lines or client base as aggressively as we should have," said Bill Winters, co-CEO of investment banking. "Clearly we had execution misses."

Among its misses was the company's poor positioning in the U.S. interest rate and commodities markets -- two areas that were blamed for the company's dreary fourth quarter results.

But the unit had strong growth in investment fees in 2005, up 12 percent to $4.1 billion, putting it in a close race behind competitor Citigroup (Research), which posted investment fees of $4.5 billion.

"We've set our sights on displacing Citi as the number one fee earner on the investment banking side," said Steve Black, co-CEO of investment banking.

He was optimistic about the company's new deal with Fidelity Investments, in which JPMorgan will become the primary supplier of new stocks and bonds to Fidelity's 10.7 million retail brokerage accounts, more than 3,000 registered investment advisors and more than 350 broker-dealer firms that do business with the company's clearing business.

Black said the alliance included exclusive distribution for initial public offerings and equity follow-on offerings, but was nonexclusive for other transactions.

"It's an absolutely superb deal," said Dick Bove, analyst at Punk Ziegel & Co. "JPMorgan now has massive distribution capabilities which is as big or bigger than anyone in the industry. And they didn't have to go out and acquire anything to get it."

Bove said while the deal will further improve the company's position in investment banking, Citigroup's sheer size, including its large customer base and solid capital position, make it a tough competitor to take on.

He added that JPMorgan still has to prove that its troubled trading operation is on the mend.

Winters said the investment banking unit ran into problems as it "underperformed" in its business management last year but going forward, the emphasis will be on "clearer lines of accountability" -- a reference to some of the bad trades the company made last year, which put pressure on the investment banking unit. To that end, Winters said the company has already made some changes among its traders and managers and plans to continue to hire more traders and salespeople that will be held responsible for the performance of the calls they make.

He added that JPMorgan Chase will invest heavily in hiring new blood especially after the company "experienced a brain drain" between 2001 and 2004 as employees jumped ship to join emerging hedge funds.

"We're highly confident that we'll have exactly the team we want through the ranks," he said.

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