U.S. banking giant Citigroup announced Dec. 5 that it plans to lay off 11,000 staff by the middle of January. Redundancies will affect most business units and staff worldwide in an effort to increase profitability.
“While we are committed to—and our strategy continues to leverage—our unparalleled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns,” said Citigroup CEO Michael Corbat in a press release.
By laying off 11,000 staff during its fiscal fourth quarter, which ends in January, the bank plans on saving $1.1 billion per year by 2014. This represents $100,000 per employee, and the company already plans to save $900 million in 2013. Revenues will decrease by $300 million per year, according to Citi estimates.
At first, the bank will have to charge off $1.1 billion of redundancy related expenses in 2012 and 2013. The majority of these severance payments will be expensed in the fourth quarter of 2012, hitting pretax earnings. The market, however, is looking ahead to the cost savings, propelling Citi’s stock higher 6.3 percent, or $2.17, Dec. 5. Shares closed at $36.46.
Analysts from HSBC call the restructuring “a (small) step in the right direction.” They say it will save 2 percent of total costs and increase 2014 earnings per share by 6 percent.
The laid-off finance professionals will face tough competition for jobs in the months ahead, as other banks have also announced sizeable layoffs. Swiss banking giant UBS said in October it would reduce staff from 64,000 to 54,000 by 2015. As of September, Citigroup employed 261,000 staff across the globe.
Transformation Continues After Pandit Leaves
The restructuring affects staff across the globe and most divisions. Investment banking will shed 1,900 positions, mostly in support functions such as operations and IT. In addition, the bank plans to shut down branches serving consumers globally, including 44 in the United States. The consumer banking unit will lose 6,200 positions. Other areas affected are the holding group and corporate banking.
The most high-profile firing, however, already took place in October, when then CEO Vikram Pandit was presented with three choices, according to the New York Times: Resign voluntarily, announce his resignation at the end of the year, or be fired. In the end, Pandit chose to resign and both parties tried to portray the parting as amicable.
The new CEO Michael Corbat is now using this opportunity to make the company more efficient. Usually, CEOs perform this exercise early in their tenure, as the responsibility can be placed on their predecessor’s mismanagement.
“This is the first sign of the new CEO taking some housekeeping actions and is welcome,” writes HSBC in a note, while also warning that more action is necessary for the bank to improve returns for shareholders. “We believe much more radical restructuring and/or more time will be needed to restore underlying returns to above cost of capital,” say the analysts, who think regulatory reform will be the biggest challenge for investment banking in the coming years.
The Epoch Times publishes in 35 countries and in 19 languages. Subscribe to our e-newsletter.
