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Citigroup CEO Michael Corbat’s new plan looks a lot like the old plan: cut costs.
In his first major move since taking charge of the sprawling financial giant, Corbat revealed plans to slash 11,000 jobs, or 4.2 percent of the global workforce, and reduce annual expenses by about $1 billion.
The ax will fall especially hard on the bank’s operations in the Big Apple, where around 1,700 jobs, or 8.5 percent of roughly 20,000 workers, will be eliminated over the next year.
While the Street largely applauded the new chief, the cost-cutting maneuvers are little different than those of his predecessor and stop far short of the radical overhaul that some critics are calling for: a breakup of the financial giant.
With the share price languishing in the $38 range since May 2010, analysts said Citi will have to do a major retooling.
“[The] restructuring is only a prelude to bigger things to come — Citi must do more by the annual meeting on April 16,” influential bank analyst Mike Mayo wrote in a note to clients. “The new plan helps the next one to two years, but not the next five to 10 years, which needs to appease activists.”
One big albatross hovering over Citi is its “bad bank,” known as Citi Holdings, which Chief Financial Officer John Gerspach acknowledged recently has been a strain on the firm’s balance sheet as well as a challenge to unwind.
Vikram Pandit, who was ousted in October after clashing with Chairman Michael O’Neill, also laid out a blueprint to shrink the lumbering colossus, which harbors 260,000 employees worldwide despite several rounds of restructuring.
O’Neill is betting that Corbat, who oversaw the bad bank unit, will do a better job of paring back the firm, which has been among the weakest performers in the aftermath of the financial crisis.
Corbat, who has been conducting a top-to-bottom review of the bank’s businesses, wants to home in on markets here and abroad that bring in the biggest bang for the buck.
“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 a statement.
Many reductions will come from eliminating domestic branches and units in far-flung markets such as Pakistan, Uruguay and South Korea that cost more to run than they generate in revenues.
The layoffs will result in a $1.1 billion charge, the bulk of which will hit this quarter.
Citi’s shares rose 6.3 percent to close at $36.46, as analysts said Corbat is moving in the right direction.
“While the size of the announcement could be viewed as light compared to similar peer cost-cutting programs, we think it should be viewed in conjunction with the substantial efficiency [savings] the company has already racked up,” Nomura analyst Glenn Schorr wrote.