Citigroup Inc.
(
C
) has come up with the decision to restructure its operations,
which will ultimately result in over 11,000 layoffs. The decision
comes as Citi counters the fall in its revenue via certain
expense reduction initiatives.
Aimed at increasing the efficiency of the company's overall
business, the move includes streamlining operations as well as
optimizing footprints across geographies. Encouragingly, this
will result in expense savings of $900 million in the year ahead.
Moreover, the annual cost savings is projected to surpass $1.1
billion beginning 2014.
However, this comes with an upfront cost. The restructuring,
which will take place across a number of the company's
businesses, will lead to a pre-tax charge of approximately $1
billion in the fourth quarter of 2012 and about $100 million of
associated charges in the first half of 2013. Also, annual
revenues are likely to bear a negative impact of below $300
million.
Restructuring in Detail
The abovementioned repositioning will result in reduction of
around 6,200 positions in Global Consumer Banking division with
40% of it being in the Operations & Technology functions that
support the business. Of the total repositioning charges in the
fourth quarter, around 35% is likely to be incurred by this
division.
Consumer operations in Pakistan, Paraguay, Romania, Turkey and
Uruguay will either be sold or trimmed down. Further, 84 branches
will be shuttered including 44 in the U.S., 15 in Korea, 14 in
Brazil, 7 in Hong Kong and 4 in Hungary. Following the revamp,
Citi's global retail branch network will reach 4,000.
In the Institutional Clients Group, around 1,900 positions will
be eliminated with over half of this impacting the Operations
& Technology functions. Securities & Banking is likely to
comprise 25% of the fourth quarter repositioning charges, while
Transaction Services will record another 10%.
Further, about 350 jobs will be slashed at Citi Holdings, and out
of the total repositioning charges, around 5% will be borne by
this unit. This will mainly be associated with the branch
rationalization in Greece and Spain.
In addition, Corporate/Other segment will incur 25% of the total
restructuring charges. The company will shed approximately 2,300
positions, which support corporate services, real estate, and
Citi Holdings, while nearly 300 employees in Global Functions
will be sacked.
In Conclusion
Owing to the financial crisis, Citi had to opt for a bailout from
the U.S. government. Over the past few years, the company has
been restructuring its business, making several layoffs, selling
assets and trimming down costs. While this marks one of the first
major actions under the new CEO, Michael Corbat's regime, the
layoffs started much earlier, i.e. during the former CEO, Mr.
Vikram Pandit's tenure.
Further, in a challenging operating environment, lower returns
and stringent capital norms, bolstering revenue has become a
challenge. Hence, many Wall Street banks are downsizing their
businesses and announcing layoffs.
Bank of America Corp.
(
BAC
),
Goldman Sachs Group Inc.
(
GS
),
UBS AG
(
UBS
) and
Deutsche Bank AG
(
DB
) are rightsizing their businesses and slashing jobs to address
revenue slump. We believe that until a recovery in revenue
occurs, sustaining and elevating profitability through cost
reduction measures including layoffs will continue.
Citi currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. The cost-cutting initiatives augur well
for the company and help boost shareholders' confidence. However,
the near-term results are expected to be affected. Estimates are
likely to be revised in the near term, but our long-term view on
the stock remains favorable.
BANK OF AMER CP (BAC): Free Stock Analysis
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UBS AG (UBS): Free Stock Analysis Report
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