The news wasn’t good for Citigroup employees last week. The banking conglomerate announced it would be cutting 4 percent of its global work force, which equates to around 11,000 jobs. It’s also planning on closing some of its branches, which should save around $1 billion a year. It’s not good news for the bank’s employees – but it’s also not good for the rest of Wall Street, either.
The past two years has seen an alarming loss of 300,000 financial industry jobs. Citi’s announcement has some analysts worried about the weak economy and domino effect that is sure to follow. Lenders both here in the U.S. and around the world are most likely to follow suit if there are no clear signs that indicate improving financial conditions. That has financial minds here in the U.S. concerned.
The knives are sharpened and ready,
said Jason Kennedy, chief executive officer of London-based search firm Kennedy Group. It’s his position that banks are too big for the businesses they are turning and more job cuts are sure to be seen if things don’t make a turn for the better – and fast.
Other American banks are sounding the alarm bells too. Last year, Bank of America and HSBC both said they were considering even bigger job cuts while UBS is less than six weeks out from its announcement that it would be cutting at least 10,000 jobs while also abandoning fixed income trading. Analysts remain convinced that more are coming, especially considering many executives are hoping to jumpstart stock valuations, courtesy of poor revenue growth in capital-markets businesses. The ten largest banks in the world may see a 2.8 percent increase to $148 billion. That’s 32 percent below 2009 and 13 percent below 2010, according to data from Coalition Ltd.
After UBS announced its job cuts, it was and remains the only one in the top ten biggest global banks that’s trading above book value, a level it reached only after announcing job cuts.
Meanwhile, Citigroup said it expects the moves to save it $2 billion in expenses over the next two years. Analysts are saying that Citigroup is simply catching up with other banks that have long since restructured. In fact, most agree this is something the bank should have done more than a year ago – when it still had “wrong” leadership.
You may recall Citigroup’s Chief CEO Michael Corbat, 52, accepted the role as leader at Citigroup less than eight weeks ago when Vikram Pandit made his departure. Before Pandit bailed, however, he cut 5,000 jobs and many are wondering why he didn’t just take the ultimate dive and do it all in one fell swoop. Meanwhile, other banks are already hinting they too may make even more cuts with the new year. Morgan Stanley has cut 6.7%, or 4000 employees this year and only said it wouldn’t make more cuts in 2012. For its part, Goldman Sachs CEO Lloyd C. Blankfein said at an investor conference on Nov. 13,
The cyclical pressures are real and we have responded by reducing cost and proactively managing our capital, and if the environment deteriorates further, we’ll take additional action,
The six largest U.S. banks have reduced headcount by more than 24,000 over the 12 months ended in September.
One Citigroup spokeswoman said,
We keep thinking it’s going to get better, but then something else happens. Nobody has said the worst is over, but what we see is that every one of our clients that we talk to have a strategy set for 2013 that’s essentially stay flat, replace as needed, only add on in places that are generating revenue.
Corbat also said last week in his presser,
We have identified areas and products where our scale does not provide for meaningful returns. We will further increase our operating efficiency by reducing excess capacity and expenses.
He then added mention that along with the job cuts, this latest reorganization will reduce annual revenues by “less than $300 million,” the statement said. If this come as a surprise to anyone, they’re not owning up to it. Analysts have expected an action of this sort since Corbat was introduced as CEO by Chairman Michael O’Neill. Many know O’Neill as the one in the financial sector who isn’t shy when it comes reducing company size and overhead in order to eliminate businesses that are not earning satisfactory returns.
What do you think this will mean for bank customers? Are you a Citi banking or credit card customer? If so, share your thoughts with us. Let us know your experience with the banking giant. Also, how will you and your family handle a branch closing in your area? Is that enough of a reason to abandon one bank for one with closer branches?