Citigroup to hack 17,000 jobs

Shake-up by nation's biggest bank will affect 8% of its work force but analysts say the move might hurt more than help.

By Rob Kelley, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Citigroup said Wednesday it is cutting 17,000 jobs in its first major overhaul in 10 years but some industry analysts said the cuts could be the exact opposite of what the nation's biggest bank needs.

In addition to the cuts, the New York-based bank said it will move 9,500 jobs to "lower-cost locations" - with about two-thirds of those jobs being moved as the positions become vacant.

charles_prince_citigroup.03.jpg
Citigroup CEO Charles Prince is under pressure from shareholders to restructure.

The restructuring affects 8 percent of Citi's current work force of 327,000 full-time employees.

Layoffs begin this week.

"17,000 plus 9,500 is the amount of jobs we're really impacting," Citi's Chief Operating Officer Bob Druskin, who managed the review process, told analysts on a conference call.

About 7,300 of the layoffs will be in the U.S.

The bank is facing intense pressure from shareholders to juice its bottom line, as the company's stock has risen just 15 percent since Prince took the reins as chief executive in October 2003. To put that in perspective, its stock soared 272 percent during the same length of time from 1997 to 2000.

About 43 percent of the job cuts will come in the United States with the rest overseas. But more than half of the expected savings of more than $10 billion will come from the domestic job cuts, the company said.

The company plans to close some offices, centralize purchasing, and eliminate positions that duplicate functions, especially in management.

Still, the cuts failed to impress Wall Street, and Citi's (down $0.83 to $51.57, Charts) stock fell 1.3 percent in early trading Wednesday.

"There's nothing new in anything new that was said in this meeting today," said Dick Bove, an analyst with Punk, Ziegel & Co. "Citigroup has already been delayering management and optimizing technology under [CEO Charles] Prince. It's merely a continuation of existing programs, which in my view is not good."

"What you have to hope as an investor is that they are going to grow revenues faster, rather than focus on expenses. I think today this exercise was a media event constructed to reduce investor complaints," he said. "What they tried to communicate today was, 'We're thinking about expenses; we're doing something about expenses; get off our backs'."

Prince addressed the issue of cost-cutting on the conference call.

"This is the beginning of a change in how we manage expenses in this company," he said. "You will see a more efficient, more tightly managed and more tough-minded Citigroup than you've seen in the past."

He announced last year a review of Citi's five divisions to create a "leaner, thinner" Citigroup. Revenue growth has not kept pace with spending at the company, putting a damper on earnings.

The company's net income declined 13 percent to $21.5 billion last year from $24.6 billion in 2005.

"The announcement shows that Citi is changing its tune a little, making sure they're focused on controlling costs and ensuring that expenditures make sense," said Morningstar analyst Craig Woker. "But some of the new cost control initiatives are things you'd hope a well-run business would be concerned with every year - not cause for a dramatic announcement."

Citigroup has operations in 100 countries, with over 8,000 bank branches serving 200 million customers.

Citi said it expects savings of $2.1 billion this year, $3.7 billion next year and $4.6 billion in 2009 from the job cuts. It will take a pretax charge of about $1.4 billion to pay for one-time costs associated with the cuts.

But Prince said that despite the cuts to "business-as-usual" expenses, Citi's overall expenditures could still rise due to acquisitions and new projects.

In March the company made a $14 billion offer to buy the portion of Japanese brokerage Nikko Cordial that it doesn't yet own.

The company is feeling pressure from shareholders eager for a return to the high-growth ways of the past.

"Citigroup over the years has built up an investor base with audacious expectations about the returns the company could generate in the future," said Woker before the cuts were announced. "But times have changed - this company is no longer managed by a team that can go out and get growth through cheap acquisitions."

Punk Ziegel's Bove believes the company's revenue woes began with moves made by former CEO Sandy Weill.

"Business by business, Citigroup stripped cash in order to make large acquisitions under Weill," he said. "As a result each of these businesses was failing to grow revenue and lost market share."

Analysts say impatient investors could actually be shooting the company in the foot.

"Often when a company embarks on restructuring, they're in hard times, but that's not the case with Citigroup," said Woker. "They just haven't focused enough on the top line."

"What does this ultimately do for them? Not a lot. It only juices the earnings growth number one time. I would much rather see moves toward strong revenue growth rather than trying to eke out some one-time gain from expense savings."

Bove, too, believes the restructuring isn't the solution to Citigroup's earning woes.

"Basically the company has underinvested in its core businesses for 10 years," he said. "Now they've set up a crazy cost-cutting program, which is absolutely the wrong thing to do. What they need to do is spend money to benefit from growth in core markets."

Citigroup's stock price gained 9 percent last year, lagging its competitors' shares. Bank of America (Charts) has added 12 percent, JPMorgan Chase (Charts) has gained 18 percent, and Deutsche Bank (down $0.64 to $138.95, Charts) has soared 22 percent. Wachovia's (Charts) shares have fallen nearly 4 percent.

Neither of the analysts quoted in this story own shares of Citigroup, and their firms do not do investment banking business with the company.


Citigroup CEO: Bank to be 'nimbler' after cuts

Dow Chemical denies takeover rumors

Financial service stocks Top of page

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.