If you’ve been up to speed on recent events at Citigroup, you’ll know that the bank is cutting 20,000 jobs. You’ll also learn that she’s already informed London staff that cuts are coming, starting next week. But don’t be fooled into thinking you know everything.
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When it announced 20,000 layoffs last week, Citi followed up with an explanation of how it planned to make that happen. Only a small percentage of the reductions will be a direct result of the simplification initiative at the Bora Bora Project Center.
Speaking to investors on Friday, Citi’s chief executive, Jane Fraser, said only 5,000 of the 20,000 jobs to be cut at Citi would come from cutting management layers. Under Bora Bora, the bank is working to reduce hierarchical complexity and reduce administrative layers from 13 to eight. In doing so, it changes the reporting chain so that senior staff have more reporting, while middle managers have more autonomy (CFO Mark Mason outlined how this would work in his finance team here).
The 5,000 “primarily administrative” jobs are being cut rapidly. Fraser said the number of City managers of 12,000 had already fallen to 10,800 after the removal of four layers in three stages that began late last year. It appears that cutting the fifth tier may be the most painful: Citi has 3,800 jobs out of 5,000, most of them administrative. When the process is over, likely at the end of the first quarter of this year, it looks like the bank will have up to 40% fewer directors than it started with.
However, even if 5,000 managers are cut, Citi will still need to cut another 15,000 jobs to reach a total of 20,000 jobs. These additional 15,000 cuts, which will be implemented through 2026, will require a different approach. Fraser said it would be achieved by consolidating functions, by eliminating “stranded costs” in already closed businesses, by exiting other “marginal businesses” (including, apparently, Muni bonds and distressed debt trading), by “Correct sizing of the basic expenditure base.” And through increased automation and efficiency. The bank has already retired 6% of its legacy platform base and has automated 90% of price verification for priority fixed income and equities securities, it said.
Since the additional cuts of 15,000 will take place over the next two years, this implies that City will delve deeper into its business. Despite suggestions that the cuts have so far contributed to the bank’s terrible fourth-quarter performance, Fraser said the current cuts simply removed bureaucracy and revenue streams were unaffected. This could still change.
While it will cut jobs, Citi will also spend. Mason and Fraser said last week that the bank plans to continue investing in risk and controls and in “transformation and technology.” For this reason, in addition to reductions, you need to increase revenues by 4% to 5% annually.
Last year, Citibank’s revenue rose 4%, driven by U.S. transaction and personal banking services. However, it decreased by 7% in the markets and by 15% in the investment banking division. This is not a good start.
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