Citigroup reveals plan to cut 17,000 jobs

Citigroup reveals plan to cut 17,000 jobs
By David Wighton in New York
Copyright The Financial Times Limited 2007
Published: April 11 2007 12:41 | Last updated: April 11 2007 13:47


Citigroup on Wednesday announced plans to axe 17,000 jobs, of which 8,500 will be lost outside the US, as part of a restructuring plan that it said would cut costs by $3.7bn next year.

A further 9,500 jobs will be moved to lower cost locations, both within the US and overseas, with two-thirds of that through attrition.

The cost cuts figure includes a previously announced programme to rationalise information technology across the group which is expected to save about $2bn a year by 2009.

The job cuts figure, from a total workforce of about 327,000, was in line with expectations while the cost reduction estimate is lower than some Wall Street analysts hoped.

Chuck Prince, chief executive, said the moves, which are the result of a three-month review, would not just cut costs but also improve Citigroup’s ability to grow.

“The recommendations that emerged from the structural expense review will improve business integration as well as our ability to move quickly and seize new growth opportunities,” he said in a statement.

The cost savings are estimated at $2.1bn this year, $3.7bn in 2008 and $4.6bn in 2009. Citigroup’s total operating expenses last year were $52bn but Citigroup said it used as a base a figure of $40.6bn, which excludes bonuses and Smith Barney commissions.

Of the $2.58bn of new cost cuts in 2009, $1.23bn will come from Citigroup’s consumer businesses, $500m from markets and banking, $150m from wealth management and $550m from corporate operations and technology.

The company will take a pre-tax charge of $1.38bn to cover the costs of the plan in the first quarter of 2007 and a further $200m later in the year.

Citigroup said the plan involved the elimination of layers of management and the consolidation of certain back-office, middle-office and corporate functions at the business, regional and headquarters levels to eliminate duplication of effort.

It aims to increase the use of share services across the group including the creation of “utilities” in areas such as legal, human resources, risk management, and financial operations, as well as the sharing of regional and country middle office functions in international markets.

Citigroup aims to expand centralised procurement. At the end of 2006, this covered 65 per cent of overall purchase which is expected to rise to 80 per cent by the end of 2007 and 100 per cent by the end of 2009.

Mr Prince has been under intense pressure to curb mounting expenses in an effort to revive Citigroup’s stagnant share price.

Last year, he faced public criticism from Prince Alwaleed bin Talal, the Saudi investor who owns a 4.3 per cent stake, who called for “draconian” action to rein in expenses.

Sandy Weill, Mr Prince’s predecessor who built Citigroup through a series of acquisitions in the 1990s, has also privately criticised Mr Prince, telling friends that “cost discipline has been lost”.

Operating expenses jumped 15 per cent to $52bn last year, while revenue grew only 7 per cent.

In December, Mr Prince ordered Bob Druskin, newly appointed chief operating officer, to carry out a comprehensive review of the company’s cost base. With the help of consultants Mercer Oliver Wyman, Mr Druskin identified areas where Citigroup less efficient than its best competitors and focused cost cuts accordingly.

Critics have pointed out that estimated additional costs cost of about $2bn – not including the information technology rationalisation – would be relatively modest compared with last year’s $7bn increase in expenses and have claimed that the process was in large part a public relations exercise. They also say that the process has been very disruptive internally.

Insiders strongly dispute this and say that the fact that there has been a big initiative with a large central restructuring charge meant that managers came forward with cost-cutting plans they would not otherwise have been pushed through on their budgets.

“Businesses are doing things they should have done long ago,” said one insider.