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53,000 jobs to be cut at Citi
Job losses are second-most in U.S. history; Citigroup stock falls 63 cents a share
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AP INTERACTIVE MULTIMEDIA
Published: November 18, 2008
NEW YORK
Citigroup, widely seen as the sickest Wall Street bank, will make some of the most severe cuts in the history of U.S. business -- 53,000 jobs -- as it tries to cut costs and get back to basics before it is too late.
The cuts, which will leave Citi about 20 percent smaller, are the latest step in a stunning remaking of the American banking landscape since the financial meltdown, an upheaval that has included the demise of storied investment houses and the conversion of others into commercial banks.
Vikram Pandit, the chief executive of Citigroup, met with employees yesterday and laid out the bank's strategy in stark terms: "We are a bank. What does a bank do? A bank takes deposits and puts them to work by investing and making loans."
Challenger, Gray & Christmas Inc., which has tracked downsizing since 1993, said that Citi's cuts are the second-most on record. IBM announced in July that it was cutting 60,000 jobs.
At its peak in 2007, Citi had 375,000 employees.
About half the cuts are expected to come from selling off parts of the business. The bank has already said that it would sell Citi Global Services and its German retail-banking businesses, and it plans to unload more, a spokesman said. The rest of the cuts are expected to come from layoffs and attrition.
As investors digested that news, financial stocks had a bad day. Citigroup stock fell 63 cents, or more than 6 percent, to $8.89. The Dow Jones industrials, nearing their lowest close since the financial meltdown began in September, lost nearly 224 points to close at 8,273.58.
The government invested $25 billion in Citigroup as part of the financial-rescue package. Yesterday, the Treasury Department announced that it had given $33.56 billion to 21 banks in a second round of payments from the program.
Still, the Bush administration has told congressmen that it does not plan to use at least half of the $700 billion bailout fund, congressional officials said. That would leave President-elect Obama to decide how to use the money when he takes office in January. The Treasury Department said that no decision has been made on whether to spend the rest of the money before Bush leaves office.
For Citi, the simple, leaner plan is a noticeable change from earlier in the decade, when banks were making a huge chunk of their profits from complex structured-finance products based on risky debt, like subprime mortgages.
Now those revenues have all but dried up, and Citi is trying to extract itself from exotic debt instruments.
"The shocking thing is that the Wall Street business model, prior to September, is effectively gone. We don't have any more independent investment banks," said Lee Pinkowitz, an associate finance professor at Georgetown University Business School.
Pandit told workers that the bank was not giving up on investment banking, citing emerging markets as a place that can deliver growth. But the riskiest investment-banking businesses are now so slow that they can't support thousands of employees.
As Pinkowitz said, the financial crisis took "what was muscle at one point and created fat."
Citigroup, which built up through rapid acquisitions over the past 20 years, has long been criticized as too spread out and difficult to manage.
"Why the heck do they need 350,000 people to start with?" said Robert Howell, a finance professor at Dartmouth's Tuck School of Business. "It's always been way overstaffed. They should've woken up to that fact a year ago when they had way too many people to begin with."
Charles Prince, the former chief executive, was shown the door last November after Citi suffered big mortgage losses. He was replaced by Pandit, a former Morgan Stanley investment banker who, while well-respected as a banker, had never led a public company. Nevertheless, most industry analysts have said that Pandit's approach -- to sell off assets and cut costs -- has been sound.
"I guess we are all conscious of the economic situation the whole world is facing and just hope for the best possible arrangements," Maria Francisca Del Orbe, who works at Citigroup Treasury Systems, wrote in an e-mail. "There is no need for us to start worrying now, but we should wait to see what happens."
And if the bank takes more hits because of the worsening credit climate -- not only in mortgages, but other consumer debt like credit cards -- it might have to keep cutting costs further.
"Of the big banks, Citi is the sickest dog," Howell said.
Of the big four U.S. banks, a group that also includes JP Morgan Chase & Co., Bank of America and Wells Fargo & Co., Citi is the only one that has not made a recent major acquisition -- which analysts say is one of the few chances for growth right now. Citi is also the only big bank left that has posted four straight quarterly losses.
Earlier this year, Citi lost out to Wells Fargo in an attempt to buy Wachovia Corp., which has its headquarters in Charlotte.
In a research note yesterday, James Mitchell, an analyst with Buckingham Research, wrote that "the recent bout of expense cuts can get the company's expense levels in line with its peers." But he added that Citigroup has much greater exposure to total risky assets, more than double its peers.
Trying to improve confidence, Pandit told workers yesterday that Citi's Tier 1 capital ratio, a key measure of financial strength, is higher than its competitors'. Citi has also doubled its reserves in a year.
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