December 5 2012
Citigroup,
the third-biggest U.S. bank, said Wednesday it plans to cut more than
11,000 jobs - about 4% of its global workforce - in an effort to reduce
costs and enhance profitability.
The move was applauded among investors, who pushed Citigroup shares up 6.3% to $36.46 in heavy trading.
In a statement, New York-based Citi (C) says it will take a pretax charge of about $1.1 billion this quarter and expects savings in 2013 to be $900 million.
The move was lifting other financial stocks, such as Bank of America, up 5.4% to $10.43.
"These
actions are logical next steps in Citi's transformation," CEO Michael
Corbat said in Citi's statement. "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."
The
bank, which employs 262,000 worldwide, did not detail how many of the
jobs cuts will be in the United States, although it plans to close 44
branches.
Corbat was elevated to CEO in October after the abrupt
resignation of Victor Pandit. "Today's announcement shows that there's a
new sheriff in town and nothing is sacred,'' says RBC Capital Market
analyst Gerard Cassidy.
Most of the job cuts Citi cited, or about
6,200, will come from Citi's consumer banking unit, which handles
everyday functions in bank branches and online.
Citi said that it
will sell or scale back consumer operations in Pakistan, Paraguay,
Romania, Turkey and Uruguay and focus on 150 cities around the world
"that have the highest growth potential in consumer banking."
The
bank says about 1,900 jobs will be cut in its institutional clients
group, an effort to "improve overall productivity in our markets
business, especially in areas experiencing continued low profitability,
such as cash equities.'' And another 2,600 jobs will disappear in the
bank's operations and technology group and global functions. Citi says it plans to cut 15 branches in Korea, 14 in Brazil, seven in Hong Kong and four in Hungary.
"This is just the beginning, '' says Raymond James Financial analyst Anthony Polini, who rates Citigroup a strong buy.
"In
a slow growth environment, low interest rates are eating away at profit
margins. One would think there are more opportunities to cut,
especially overseas," Polini says.
The CEO promised the bank would
reduce "excess capacity and expenses, whether they center on
technology, real estate or simplifying our operations."
Pandit
resigned in mid-October, just one day after the bank said its
underlying third-quarter profits were strong and that the bank's outlook
was improving.
In November, a regulatory filing disclosed that Citi paid Pandit a $6.7 million bonus and paid a $6.8 million bonus to John Havens, the former chief operating officer who resigned when Pandit did.
Pandit
had reportedly clashed with the board over the company's strategy and
its relationship with the government. He had been at the helm of the
bank for five years, before and following the 2008 financial collapse.
Mike
Mayo, a Credit Agricole Securities analyst and long-time Citigroup
critic, said in an interview on cable TV's CNBC that the layoffs are
needed, but more change is necessary. "The big issue isn't what's going
to happen in the next one to two years, but what will they do in the
next five to 10. They need a more radical restructuring. At some point,
they need to exit some businesses."
Citi nearly collapsed during
the financial crisis and had to take two taxpayer bailout loans. It has
been shrinking since, shedding units and trying to find a business model
that's more streamlined and efficient.
The streamlining hasn't
gone as smoothly as Citi hoped. This fall, for example, when Citi
negotiated the sale of its stake in the retail brokerage Morgan Stanley
Smith Barney, it got far less than it wanted from buyer Morgan Stanley.
Contributing: The Associated Press
http://www.usatoday.com/story/money/2012/12/05/citi-cuts-11k-jobs/1747897/
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