Recently,
Citigroup Inc.
(
C
) jumps on the bandwagon of slashing bonuses. The company reduced
10%-20% of incentives in its investment banking division
globally. The bonus cuts come on the back of Citigroup's
disappointing fourth-quarter results. The company reported
revenues of $70.2 billion for the year 2012, down 10% year over
year (including credit valuation adjustment/debt valuation
adjustment).
In its Asian and European units, average bonuses declined by
roughly 20%, whereas the U.S. divisions witnessed a 10%
reduction. The employees were made aware of this decision last
week.
Bankers up to the Vice President rank received either unchanged
or higher bonuses, whereas senior bankers below the
aforementioned rank received reduced bonuses. However, the
leading performers were spared the axe.
Citigroup joins a host of other banking giants who are stressing
upon expense reduction initiatives to counter a sluggish economic
recovery. Notably, the economic slump has had a severe impact on
the securities sales-and-trading business across several large
Wall Street firms including Citigroup.
Similar Actions by Other Banks
Earlier this month, Bloomberg reported that Frankfurt-based
Deutsche Bank AG
(
DB
) is contemplating on trimming roughly 20% of bonuses in its
investment banking division in Europe for 2012. Even though the
plans are in the primary stage, the company is anticipated to
declare its final decision by this month. The reduction in
bonuses may take place in the range of 10%-20% on an average in
Europe, Middle East and Africa. However, locations that achieved
healthy results will have much lower bonus cuts.
London-based
Barclays PLC
(
BCS
) is also expected to slash bonuses for investment bankers for
2012 by roughly 20%. The company is taking this step to augment
its profit levels. The bonus details are anticipated to be
announced in early February this year.
U.S. banking major
Morgan Stanley
(
MS
) also reduced compensations of its investment banking unit by 8%
and adjourned bonuses of roughly one-fifth of the employees.
Our Viewpoint
We believe in a tepid economic recovery, bolstering revenue has
become a challenge. Therefore, to sustain and elevate
profitability, banks are undertaking cost reduction measures such
as layoffs and bonus cuts. Until a recovery in revenue occurs,
such actions are anticipated to help strengthen profit levels and
capital ratios.
Citigroup currently retains a Zacks Rank #3 (Hold).
BARCLAY PLC-ADR (BCS): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research
