By Donal Griffin and Dakin Campbell - Dec 7, 2011 12:00 PM GMT+0700
Dec. 7 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the U.S. financial services industry. Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to trim costs amid slumping revenue. Holland speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to reduce costs amid slumping revenue and “unprecedented” market conditions.
The lender will take a fourth-quarter pretax charge of about $400 million tied to the reductions, including severance, Pandit said yesterday at an investor conference in New York. Citigroup, the third-biggest U.S. bank by assets, employed (C) about 267,000 people as of Sept. 30, according to a filing.
“Financial services faces an extremely challenging operating environment with an unprecedented combination of market uncertainty, sustained economic weakness in the developed economies and the most substantial regulatory changes we have seen in our lifetimes,” said Pandit, 54. “These trends will likely significantly affect the competitive landscape in the coming years.”
Pandit is cutting staff as the European sovereign-debt crisis persists and banks prepare for regulations on minimum capital levels to take effect, threatening revenue from trading and investment banking. Citigroup said in September it would limit hiring to “critical” jobs to control costs.
“The 4,500 is a drop in the bucket for them, particularly when you consider how big they are and their global scope,” Nancy Bush, an analyst at SNL Financial, a bank-research firm in Charlottesville, Virginia, said in a phone interview. “I’d be suspicious that this may be the tip of the iceberg.”
Financial firms worldwide have cut more than 200,000 jobs this year, up from about 58,000 last year and 174,000 in 2009, according to data compiled by Bloomberg. Bank of America Corp. CEO Brian T. Moynihan said the Charlotte, North Carolina-based lender plans to eliminate 30,000 jobs in the next few years.
‘Overhead Expenses’
“For the banking sector, both investment banking and commercial banking, the overhead expenses are too high,” Gerard Cassidy, an analyst at Royal Bank of Canada in Portland, Maine, said in a phone interview. “The industry needs to do a better job bringing that expense level down to reflect the lower revenues vis-a-vis what they were two or three years ago.”
The 4,500 job cuts announced yesterday amount to 1.7 percent of Citigroup’s workforce on Sept. 30 and would still leave the lender with almost the same amount of staff it had at the end of 2009, when the firm employed about 265,300 people, regulatory filings show.
Pandit is investing in emerging markets such as Brazil, China and India, which now account for more than half of the bank’s profit. Those economies may expand at 6 percent a year through 2015, eclipsing developed markets, which may grow less than 2 percent, Pandit said.
“Developed economies are undergoing a long period of deleveraging of consumer, financial, corporate and government balance sheets, which will drive slow growth for years,” Pandit said at the conference sponsored by Goldman Sachs Group Inc. “By contrast, emerging-markets growth is expected to continue, fueled by population growth, the rise of a powerful consumer base in the middle class and a growing share of world trade.”
Citigroup opened 65 branches through the first three quarters of this year, mostly in Asia and Latin America, the bank’s consumer head, Manuel Medina-Mora, said Nov. 16.
Pandit didn’t say where the staff reductions would occur and Jon Diat, a bank spokesman, declined to specify which countries would see the steepest cuts. Pandit has cut more than 100,000 jobs since he became CEO in December 2007 through dismissals and sales of distressed assets and businesses from the New York-based lender’s Citi Holdings unit.
Citigroup slid 0.3 percent to $29.75 yesterday and has dropped 37 percent this year.
Proprietary Trading
Some of the job cuts at Citigroup will come from the firm’s proprietary-trading operations as regulators seek to restrict banks from betting shareholder cash, Pandit said. The firm said in October that it’s closing the Equity Principal Strategies unit, a proprietary-trading operation run by Sutesh Sharma.
Citigroup posted a 74 percent increase in third-quarter profit, aided by a $1.9 billion accounting gain that softened the impact of lower trading and investment-banking revenue. Excluding the accounting figure, the bank’s revenue for the period fell 8 percent to $18.9 billion.
Most of that accounting gain stemmed from a credit- valuation adjustment, or CVA. This required Citigroup to book a gain on the declining value of its debts.
The spreads have tightened this quarter, Pandit said. If the fourth quarter ended on Dec. 5, the bank would post a $200 million negative CVA, compared with a $1.9 billion gain in the previous quarter, he said.
Citigroup’s lending business in its securities and banking operation also would record a loss of about $300 million tied to hedges if the quarter ended on Dec. 5, Pandit said. Hedges are bets that firms make when seeking to curb potential losses on existing positions.
To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.
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