Job cuts at Citigroup
Heads will roll at Citi
Citi will lay off tens of thousands of workers, but it needs to do more to show it is in control of its destiny
ANNOUNCING 50,000 job cuts is a strange way to reassure staff. That, however, was the main message to emerge when Vikram Pandit, Citigroup’s chief executive, addressed his 352,000 employees during a town-hall meeting on Monday November 17th. The purpose of the unusual gathering was to assure staff that Citi is heading into 2009 stronger than it entered 2008. That was no easy point to get across, even given the awful year that the bank has had so far. Its share price, at less than $9, is in single digits for the first time in a dozen years. It has racked up accumulated losses of $20 billion over the past year.
Staff might have hoped that Mr Pandit would offer a rough guess on when Citi would return to profit, but that was not to be. Under a slide buoyantly entitled “Getting Fit—Fast!” he told them that revenues were flat, expenses would tumble by 16-19% next year and headcount would drop to less than 300,000, down from a peak of 375,000 at the end of last year. Some of those job cuts have already been announced. Still, that is not the sort of fitness regime many in the bank will celebrate. Nor did it particularly impress shareholders.
A few positive notes were sung. Citi’s tier-one capital ratio, which measures how well capitalised is its loan book, was a robust 8.2% at the end of the third quarter, or 10.4% if government support under the Troubled Asset Relief Programme is included (Citi was handed $25 billion). The sale of assets such as its German retail bank will further strengthen it. Citi has also reduced some of its riskiest exposures, which have caused most of the losses over the past year. Deposits fund more than a third of its $2.05 trillion of assets, although some rivals, such as Wells Fargo and Bank of America, have a higher share of assets funded by deposits.
But these are only token comforts compared with the giant challenges that Mr Pandit faces in getting Citi back on a sound course. It entered the crisis in worse shape than many competitors, still resembling the hastily assembled juggernaut put together by Sandy Weill, a merger-mad former boss. Although big, global and aggressive in investment banking, it lacked discipline. Now valued at a puny $50 billion, it is not clear what its size was for. Even the diversity of its operations is not the strength that it once appeared to be. As well as America, many of the countries where it has generated much of its revenue growth during the past year are in crisis, although longer-term prospects are brighter in less mature markets.
Citi’s deep-rooted identity crisis is not Mr Pandit’s fault. He took the helm just under a year ago. But neither he nor Citi’s London-based chairman, Sir Win Bishoff, have grabbed the tiller as firmly as many had hoped when Chuck Prince was jettisoned. Other banks have been quicker to sell their most distressed assets. Some have been quicker to buy rivals (though Citi’s failure to buy Wachovia may turn out to be a blessing in disguise). Sir Win has been questioned enough that Citi’s board was forced to issue a statement of support for him last week, after a Wall Street Journal article cast doubt on his future. Unless more is done quickly to tackle Citi’s current problems, not to mention its structural ones, heads may roll at the top of Citi, not just at the bottom.