It was just a matter of time: the financial sector, after months of taking hit after hit, fine after fine and one bad publicity scenario after another, is now cutting jobs. And worse, it’s likely 2013 will bring a series of job cuts for Wall Street and the collective financial industry as it increasingly looks like it’s the only way profits will be gained. But what, if anything, does this mean for other industries in the U.S. hoping for a stronger year?
On Thursday, Citigroup joined the growing list of financial entities going through growing pains when it announced it will cut 11,000 jobs as part its cost cutting plans. This equates to around 4% of its global workforce. This is the first big news since new CEO Michael Corbat took over. Not only that, but it also announced it would be taking a $1 billion pre- tax charge during the fourth quarter, along with close to $100 million in unspecified, but related charges during the first half of 2013 as part of this big plan. It’s believed it will save the banking giant $900 million in 2013 and more than $1.1 billion every year after.
These changes don’t come without other financial impacts, specifically with its revenue considerations; however, it insists the hit isn’t going to outweigh the benefits of cutting the jobs and says it should lead to around $300 million in lost revenue yearly. CEO Corbat said during the announcement that the actions were the “logical next steps in Citi’s transformation.” Corbat picked up the lead after now-former CEO Vikram Pandit dramatically announced he’d be exiting “immediately” this past October.
The cuts are considered comprehensive and will affect all of the divisions located around the world. It’s all about improving efficiencies, said Citi CFO John Gerspach on Thursday. He also stressed that management would also continue to examine all of its businesses in order to ensure optimal operations.
Citi said it will also consolidate and close 84 bank branches in Brazil, Hong Kong, Hungary, Korea and the United States; this equates to 2% of its branches worldwide. This is quite routine for Citi. Since November 2008, the bank has eliminated close to 25% of its staff. The latest 11,000 job cuts that were announced Wednesday amount to 4% of Citigroup’s current workforce, which stood at 261,000 full-time employees at the end of September, 2012. The year promises even more cuts, too.
Furthermore, Citi also says it will cut 350 jobs from Citi Holdings, the department that’s home to the bank’s “bad” legacy assets from the financial crisis. Corbat reiterated that the bank is focused on phasing out Citi Holdings in an “economically rational manner,” but also said selling mortgages and other assets at current prices is unlikely.
But for those whose jobs are safe, they’re not getting out unscathed. Citigroup also announced its plans to slash bonuses between 5% and 10%. The source remains unnamed, but it’s said to be a reliable one who knows the details of the banking giant’s knowledge of the firm’s year-end compensation plans.
Also on Thursday, American Express announced that it too is on job cutting mission. This time, it says it will eliminate 5,400 jobs. During its presser, it said the biggest reductions were coming from its travel business that operates in an industry that is being “fundamentally reinvented as a result of the digital revolution”.
Kenneth Chenault, American Express CEO, said in a conference call with analysts that,
One outcome of this ongoing shift to online is that we can serve a growing customer base with lower staffing levels.
He then said the ability to stay ahead of those trends is what’s fueled the model redesign with global business partners. It’s also allowed the credit card company to “to continue the evolution within card member servicing and collections.”
This announcement was made at the same time it ‘pre announced’ its fourth quarter earnings. Not counting severance costs brought on by the job cuts and other expenses, the net arrived at a total of $1.2 billion, or $1.09 a share, which is impressive considering the Thompson Reuters predicted $1.06 a share. Sales were $8.1 billion, in line with expectations. Still, this proactive approach is believed to keep the bank stronger.
By the end of 2013, Chenault expects a company with between 4% and 6% fewer employees. Those cuts will be in both the U.S. and in international markets.
Finally, this week, it looks as though layoffs have hit Morgan Stanley again. It too announced a cut in its work force by 3%. That equates to around 1,600 jobs and the reason given is market conditions. It’s also expected these layoffs will effect all levels of the financial entity, though specific targets are on its institutional securities group, including investment banking and stock and bonding divisions. The bank’s back office support teams are also likely to feel the heat. Half of these job cuts will be here in the states. This latest cut will mean it’s seen 10 percent of its work force cut since this past September. The bank isn’t commenting. It’s also being reported its “senior work force” will likely be the hardest hit.
Morgan Stanley saw its shares jump 33% in 2012 and it continues to trade higher in 2013.
Greg Fleming, president of Morgan Stanley’s wealth management division, said
We’ve been building our wealth management and asset management division to become more balanced.
He also said it’s his belief it’s that way for everyone in the financial sector. Trading environments are challenging and the repercussions from the 2008 recession and financial meltdown still weighs heavy. Profits in 2013 are more likely going to be due to cost cutting measures versus anything else.
One analyst said double digit profit growth in the year year will be 75% due to savings and efficiency initiatives. With that mindset it’s expected even more banks and card networks will begin their own layoffs if they expect to deliver bigger profits this year.
Do you think these layoffs are indicative of what other sectors can expect this year or do you think we’re on the mend and the banks just haven’t caught up? Share your thoughts with us.