Citi, the banking giant, recently announced plans to restructure its operations, which includes a reduction in its workforce size by 7,000 employees. This restructuring is aimed at streamlining the bank’s operations and improving performance. By reducing the workforce, Citi expects to achieve annualized savings of $1.5 billion.
Citigroup Inc. or Citi (stylized as citi) is an American multinational investment bank and financial services corporation incorporated in Delaware and headquartered in New York City. Citigroup is the third-largest banking institution in the United States by assets; alongside JPMorgan Chase, Bank of America, and Wells Fargo, it is one of the Big Four banking institutions of the United States. It is considered a systemically important bank by the Financial Stability Board and is commonly cited as being too big to fail.
Citi’s Chief Financial Officer, Mark Mason, announced that the bank anticipates saving $1.5 billion per year from the 7,000 job cuts it has made. This means that, on average, the bank was spending no more than $214,000 on each of those employees, including taxes paid by the employer. Additionally, Citi revealed that it incurred $258 million in costs related to restructuring as it eliminated these 7,000 positions, suggesting that severance payments averaged more than $37,000 per person.
However, the job cuts at Citi are not yet complete. The bank plans to reduce its workforce by a total of 20,000 people, which means there are still 13,000 more positions to be eliminated. Out of these, 5,000 are expected to come from divesting certain business units, while the remaining reductions will come from technology and support teams.
However, Citi faced setbacks in its first-quarter results, primarily due to increased costs associated with severance payments for laid-off employees and funds allocated to replenish a government deposit insurance fund. In the three months ending March 31, Citigroup’s net income dropped to $3.4 billion, or $1.58 per share. This represents a significant decline compared to the same period last year when the bank reported a net income of $4.6 billion, or $2.19 per share.
CEO’s Perspective and Cost Implications
CEO Jane Fraser acknowledged the challenges faced by Citi and emphasized the completion of the organizational simplification announced in September. She stated that the restructuring efforts have resulted in a cleaner and simpler management structure that aligns with the bank’s strategy. However, the costs associated with the restructuring surged, leading to total expenses of $14.2 billion.
As part of the reorganization, Citi communicated the largest round of staffing adjustments, including reassignments and departures, to its employees in late March. Additionally, the bank allocated $251 million to replenish a Federal Deposit Insurance Corp fund that experienced depletion following the failure of three regional lenders last year.
Performance Across Divisions
Despite the challenges faced by Citi, its services and banking divisions delivered promising performances. The division providing cash management, clearing, and payments services for major corporations saw an 8% increase in revenue to $4.8 billion. This growth was driven by an 18% rise in securities services revenue, totaling $1.3 billion.
Furthermore, Citi experienced a remarkable 49% increase in banking revenue to $1.7 billion, propelled by a resurgence in capital markets and investment banking fees. Corporate lending also witnessed a notable 34% rise.
However, the markets segment faced headwinds, with trading revenue declining by 7% to $5.4 billion, primarily due to challenges in fixed income and currency operations. Wealth management revenue also contracted by 4% to $1.7 billion.
Consumer Banking and Potential Loan Losses
While Citi’s consumer banking division reported revenue growth, the bank allocated additional funds to cover potential losses resulting from customers defaulting on loans. This highlights the bank’s cautious approach in managing risks associated with lending.
CEO’s Confidence and Investor Response
Despite the tumultuous period, CEO Jane Fraser expressed confidence in the transformative changes made at Citi, positioning the bank for enhanced competitiveness. Investors have responded positively to Fraser’s initiatives, as reflected in the company’s stock price appreciation of 18% year-to-date. This outperformance of industry peers and the S&P 500 benchmark indicates investor confidence in Citi’s future prospects.
Ongoing Challenges and Regulatory Focus
However, Citigroup continues to face challenges, including regulatory issues and a workforce in flux. In February, reports emerged that U.S. regulators had requested urgent modifications to Citigroup’s approach in measuring default risk of trading partners. The bank is actively addressing deficiencies outlined in enforcement actions from the U.S. Federal Reserve and the Office of the Comptroller of the Currency in 2020. The focus is on enhancing risk management, data governance, and internal controls to ensure compliance with regulatory requirements.
