Citigroup Job Cuts, Vikram Pandit hired thousands of employees and invested billions of dollars as he sought to boost Citigroup Inc. (C)’s revenue after fighting to survive the financial crisis. His successor Michael Corbat has another idea: cut.
Corbat will cut about 11,000 jobs, more than double the number Pandit announced in January, the New York-based company said yesterday in a statement. Citigroup also will shut branches and pull back from some emerging markets, a priority for Pandit before Chairman Michael O’Neill led his Oct. 16 ouster.
The move counters the strategy once pursued by Pandit, who added staff in 2011 and increased costs across consumer and investment banking in a bid to expand after the crisis. The cuts reflect the board’s change in tactics, one that probably helped spur Pandit’s departure, according to Marty Mosby, a Guggenheim Securities LLC analyst.
“It is a shift in priorities and a shift in magnitude,” Mosby said. “The board was more comfortable in maximizing profitability through efficiency initiatives in lieu of trying to aggressively seek incremental growth opportunities.”
Citigroup shares surged the most since January after yesterday’s announcement, climbing 6.3 percent to $36.46, the best performance in the KBW Bank Index (BKX) of 24 U.S. lenders.
Pandit increased staff by 2.3 percent to 266,000 last year, as he pushed the lender to expand in India, China, Singapore and Mexico after repaying a $45 billion U.S. bailout. Costs climbed 7.5 percent to $50.9 billion.
Cutting Deeper
Even though the company announced 5,000 job cuts in January, O’Neill and the board probably want to focus purely on reducing costs and selling unwanted assets before pursuing more growth in emerging markets, Mosby said. They are cutting deeper than Pandit as stiffer capital rules and an industrywide slump in trading and investment banking pressure profit.
“Pandit was ready to shift his focus toward growth through market-share gains in an opportunistic time,” Mosby said. “That’s where O’Neill and the board parted ways. They were not comfortable that that would be the primary focus over the next 12 to 24 months.”
The lender will take a $1 billion charge this quarter to cover the 4.2 percent workforce reduction, which includes 1,900 jobs in a division that houses trading, investment banking and transaction services, Citigroup said. O’Neill, 66, and Corbat, 52, seek to improve productivity in markets businesses such as cash equities, where profit is being squeezed, according to the statement.
‘New Sheriffs’
“The new sheriffs are in town,” Gerard Cassidy, a Royal Bank of Canada analyst, said in an interview with Tom Keene on the “Bloomberg Surveillance” radio program. O’Neill led efforts to oust Pandit, and the new chairman played a major role in redirecting the bank’s strategy, Cassidy said. “His fingerprints are all over this,” he said.
Analysts including Cassidy, Wells Fargo & Co. (WFC)’s Matt Burnell and Ed Najarian at International Strategy & Investment Group Inc. reiterated their buy ratings on Citigroup shares.
About 35 percent of fourth-quarter costs will be tied to eliminating 6,200 jobs in consumer banking, with operations set to be sold or scaled back in Pakistan, Paraguay, Romania, Turkey and Uruguay, according to the statement. Branches will be reduced in five other nations (C), including 44 in the U.S. Corbat also will cut about 2,600 jobs from operations, technology, human resources, legal and finance, according to the bank.
“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,” Corbat said in the statement.
‘Intelligent Way’
The plan will save about $900 million next year, and projected annual savings will exceed $1.1 billion beginning in 2014, the company said. Annual revenue (C) will drop by about $300 million, according to the forecast. The $1 billion charge this quarter is pretax, and $100 million more will come in the first half of next year.
Management is “rationalizing the business in an intelligent way,” Appaloosa Management LP CEO David Tepper said. Citigroup was Appaloosa’s third-biggest holding by market value as of Sept. 30, according to data compiled by Bloomberg.
The job cuts are “part of a continuum” that began with the previous executives, Citigroup Chief Financial Officer John Gerspach said yesterday at an investor conference in New York. “What you can expect from the management team at Citi is a continuing examination of every one of our businesses,” he said. “We’ll constantly seek new areas to improve efficiency.”
In foreign markets, the bank must be “disciplined in how we come to market in each of these regions and thoughtful about how we’re allocating our finite resources,” Gerspach said.
Corbat will cut about 11,000 jobs, more than double the number Pandit announced in January, the New York-based company said yesterday in a statement. Citigroup also will shut branches and pull back from some emerging markets, a priority for Pandit before Chairman Michael O’Neill led his Oct. 16 ouster.
The move counters the strategy once pursued by Pandit, who added staff in 2011 and increased costs across consumer and investment banking in a bid to expand after the crisis. The cuts reflect the board’s change in tactics, one that probably helped spur Pandit’s departure, according to Marty Mosby, a Guggenheim Securities LLC analyst.
“It is a shift in priorities and a shift in magnitude,” Mosby said. “The board was more comfortable in maximizing profitability through efficiency initiatives in lieu of trying to aggressively seek incremental growth opportunities.”
Citigroup shares surged the most since January after yesterday’s announcement, climbing 6.3 percent to $36.46, the best performance in the KBW Bank Index (BKX) of 24 U.S. lenders.
Pandit increased staff by 2.3 percent to 266,000 last year, as he pushed the lender to expand in India, China, Singapore and Mexico after repaying a $45 billion U.S. bailout. Costs climbed 7.5 percent to $50.9 billion.
Cutting Deeper
Even though the company announced 5,000 job cuts in January, O’Neill and the board probably want to focus purely on reducing costs and selling unwanted assets before pursuing more growth in emerging markets, Mosby said. They are cutting deeper than Pandit as stiffer capital rules and an industrywide slump in trading and investment banking pressure profit.
“Pandit was ready to shift his focus toward growth through market-share gains in an opportunistic time,” Mosby said. “That’s where O’Neill and the board parted ways. They were not comfortable that that would be the primary focus over the next 12 to 24 months.”
The lender will take a $1 billion charge this quarter to cover the 4.2 percent workforce reduction, which includes 1,900 jobs in a division that houses trading, investment banking and transaction services, Citigroup said. O’Neill, 66, and Corbat, 52, seek to improve productivity in markets businesses such as cash equities, where profit is being squeezed, according to the statement.
‘New Sheriffs’
“The new sheriffs are in town,” Gerard Cassidy, a Royal Bank of Canada analyst, said in an interview with Tom Keene on the “Bloomberg Surveillance” radio program. O’Neill led efforts to oust Pandit, and the new chairman played a major role in redirecting the bank’s strategy, Cassidy said. “His fingerprints are all over this,” he said.
Analysts including Cassidy, Wells Fargo & Co. (WFC)’s Matt Burnell and Ed Najarian at International Strategy & Investment Group Inc. reiterated their buy ratings on Citigroup shares.
About 35 percent of fourth-quarter costs will be tied to eliminating 6,200 jobs in consumer banking, with operations set to be sold or scaled back in Pakistan, Paraguay, Romania, Turkey and Uruguay, according to the statement. Branches will be reduced in five other nations (C), including 44 in the U.S. Corbat also will cut about 2,600 jobs from operations, technology, human resources, legal and finance, according to the bank.
“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,” Corbat said in the statement.
‘Intelligent Way’
The plan will save about $900 million next year, and projected annual savings will exceed $1.1 billion beginning in 2014, the company said. Annual revenue (C) will drop by about $300 million, according to the forecast. The $1 billion charge this quarter is pretax, and $100 million more will come in the first half of next year.
Management is “rationalizing the business in an intelligent way,” Appaloosa Management LP CEO David Tepper said. Citigroup was Appaloosa’s third-biggest holding by market value as of Sept. 30, according to data compiled by Bloomberg.
The job cuts are “part of a continuum” that began with the previous executives, Citigroup Chief Financial Officer John Gerspach said yesterday at an investor conference in New York. “What you can expect from the management team at Citi is a continuing examination of every one of our businesses,” he said. “We’ll constantly seek new areas to improve efficiency.”
In foreign markets, the bank must be “disciplined in how we come to market in each of these regions and thoughtful about how we’re allocating our finite resources,” Gerspach said.
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