TEXT SIZE : A | A | A
Citigroup said it is cutting 11,000 jobs worldwide, delivering the first of what investors expect to be a new series of steps to shrink the bank down to a more manageable and profitable size.
The cuts, which amount to about 4 per cent of the bank's workforce, carry the fingerprints of Citigroup's Chairman Michael O'Neill. A banking industry veteran, O'Neill, 66, has a history of ruthlessly shedding businesses that are not earning enough money.
Investors were expecting O'Neill to launch a similar plan at Citigroup after he pushed out Vikram Pandit and made Michael Corbat chief executive in October.
Speaking at a conference, Citigroup Chief Financial Officer John Gerspach said the cuts announced on 5 December are "a fairly comprehensive initial foray" for the new leaders, leaving the door open to more reorganisation.
Citigroup has been cutting costs since at least 2007, but investors have complained that expenses are not dropping fast enough. Its quarterly operating expenses are similar to their levels in 2006, but quarterly income is now less than half 2006 levels.
The bank announced 96,500 job cuts from 2007 to 2011, behind only the US government and General Motors for layoff announcements, according to outplacement firm Challenger, Gray & Christmas Inc, which tracks US layoffs.
The cuts announced on 5 December are expected to bring at least $1.1 billion in annual savings starting in 2014, thanks to both job cuts and broader reorganisation efforts. The changes the bank is envisioning will also result in revenue falling by about $300 million annually, and will spur some $1.1 billion of charges through the middle of next year.
"While we are committed to-- and our strategy continues to leverage our unparallelled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns. And we will further increase our operating efficiency by reducing excess capacity and expenses, whether they centre on technology, real estate or simplifying our operations," Citi's Chief Executive Officer Michael Corbat said.
Citi said the repositioning efforts are aimed at reducing expenses and improving efficiency across the company. About 1,900 positions would be eliminated in Citi's Institutional Clients Group. More than half of these jobs are in the operations and technology functions that support the business.
Earlier reductions, including a 2008 announcement to cut 50,000 jobs, were linked primarily to purging the company of assets that had turned bad in the financial crisis.
More recent job cuts, including 4,500 announced at this time last year, have been aimed more at shrinking Citigroup's costs as the bank became less profitable.
Citi Holdings is expected to eliminate approximately 350 positions, concentrated mostly in Greece and Spain, and incur approximately five per cent of the repositioning charges. About 25 per cent of the repositioning charges are expected to be incurred in the corporate sector with approximately 2,300 positions that support corporate services, real estate, and Citi Holdings to be deducted. Another 300 global functions positions would be eliminated as a result of efficiency savings.
"Citi has come a long way over the past several years.... We have shed hundreds of billions in assets and businesses that are not core to our strategy. We will continue to seek ways to optimise the execution of our strategy to better serve our clients and deliver results for all of our stakeholders," Corbat said.
Citigroup shares rose 6.3 per cent to close at $36.46 on the New York Stock Exchange. Shares of Bank of America and other banks also climbed.
Corbat, in a memo to employees obtained by Reuters, said he used the company's budgeting process for 2013 to identify ways to streamline the company. "Given the challenging environment, we need to continue to be disciplined in how we allocate our finite resources," Corbat said in the memo.
The cuts cover virtually all of the company's operations, from investment banking and securities trading, to consumer banking and corporate overhead. The company said it will sell or significantly scale back consumer operations in Turkey, Pakistan, Paraguay, Romania and Uruguay.
"We have identified areas and products where our scale does not provide for meaningful returns," Corbat said in a statement. "We will further increase our operating efficiency by reducing excess capacity and expenses."
Nancy Bush, a long-time bank analyst and a contributing editor at SNL Financial, said she expects Corbat will continue reorganising and cutting jobs for two years. "I look at this as the first cut," she said. "Corbat will be forever digging and looking for places to cut, and inevitably personnel will be the biggest part of that."
Consumer Banking Cuts
Citi added that the actions are designed to streamline its client coverage model in banking and improve overall productivity in the markets business, especially in areas that have been experiencing continued low profitability such as cash equities.
Another 35 per cent of the fourth quarter repositioning charges are expected to be incurred in Global Consumer Banking group, resulting in a reduction of 6,200 positions. As a result, Citi said it expects to either sell or significantly scale back consumer operations in Pakistan, Paraguay, Romania, Turkey and Uruguay.
Citi would instead focus on the 150 cities that have the highest growth potential in consumer banking and concentrate its presence in major metropolitan areas. Citi plans to shed 84 branches in five countries, more than half of them in the US. After the restructuring, the bank will have 4,000 retail branches around the world.The markets affected by the reductions include Brazil (14 branches), Hong Kong (7), Hungary (4), Korea (15) and the US (44). It would however continue to invest in its franchises in these countries.
Bush said the bank in the mid-2000s had scattered branches in areas such as Boston and the New York suburbs. "They now need to go back and rethink their whole domestic branch strategy, and international as well," she said.
When Citigroup changed CEOs in October, O'Neill said executives would continue the bank's strategy of paring back to operate core businesses more efficiently. The strategy has included emphasising business in major urban areas.
Of the announced restructuring charges, about 25 per cent will be taken in the bank's investment and corporate banking businesses, and 10 per cent in transaction services. Some 1,900 jobs are to be cut from those areas, with more than half coming from operations and technology functions that support the businesses.
One goal of the cuts is to eliminate redundant coverage of relationships with corporate clients, long a source of inefficiency at Citigroup, where sometimes multiple bankers handle relationships with companies and pitch them loans, deal advice, securities underwriting and other services.
The moves will "streamline our client coverage model," the bank said.
Another 25 per cent of the charges are for reworking corporate and miscellaneous other functions. About 2,600 jobs are being eliminated from corporate support services, global functions, real estate and the Citi Holdings portfolio of troubled assets that the company is shedding.
The announcement did not say how Corbat intends to organise his executive team or whether he will fill the position of chief operating officer, which was left open when John Havens departed with Pandit.
Citi, which had to depend on government bailout money to navigate the financial crisis, had rejigged its top management in October that saw Pandit leaving the company. Pandit was credited with steering the company through the financial crisis but he resigned from his positions in the wake of reported differences with the board. Citigroup had said in October that it would pay Pandit $6.6 million in incentive awards for 2012.
Even before the Citigroup move, major banks had announced some 160,000 job cuts since early last year, according to a Reuters analysis in November.
Among the largest: Bank of America in September 2011 announced 30,000 layoffs as part of a plan to reduce annual expenses by $8 billion. That bank is also closing or selling 750 branches.