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When Citigroup CEO Jane Fraser announced in September that her sweeping corporate overhaul would result in an undisclosed variety of layoffs, a jolt of fear ran through most of the bank’s 240,000 souls.
“We’ll be saying goodbye to some very talented and hard-working colleagues,” she warned in a memo.
Employees’ concerns are justified. Managers and consultants working on Fraser’s reorganization — known internally by its code name, “Project Bora Bora” — have discussed job cuts of at the very least 10% in several major businesses, in accordance with individuals with knowledge of the method. The talks are early and numbers may shift in coming weeks.
Fraser is under mounting pressure to repair Citigroup, a worldwide bank so difficult to administer that its challenges consumed three predecessors dating back to 2007. Already a laggard in every metric that matters to investors, the bank has fallen further behind rivals since Fraser took over in early 2021. It trades at a price-to-tangible book value ratio of 0.49, lower than half the common of U.S. peers and one-third the valuation of top performers including JPMorgan Chase.
“The one thing she will do at this point is a extremely substantial headcount reduction,” James Shanahan, an Edward Jones analyst, said in an interview. “She must do something big, and I believe there’s likelihood it’ll be greater and more painful for Citi employees than they expect.”
Citigroup’s stock has been mired in a slump under CEO Jane Fraser.
If Fraser decides to part with 10% or more of her workforce, it might be certainly one of Wall Street’s deepest rounds of dismissals in years.
Burdened by regulatory demands that hastened the retirement of her predecessor Mike Corbat, Citigroup’s expenses and headcount have ballooned under Fraser. While competitors have been cutting jobs this 12 months, Citigroup’s staff levels remained at 240,000. That leaves Citigroup with the largest workforce of any American bank except the larger and much more profitable JPMorgan.
An update on Fraser’s plan and its financial impact will come in January together with fourth-quarter earnings.
Nagging doubts
The stakes are high for America’s third-largest bank by assets. That is because, after many years of stock underperformance, missed targets and shifting goal posts, Fraser is taking steps analysts have long called for. Failure could mean renewed calls to unlock value by taking much more drastic actions like dismantling the corporate.
Fraser has vowed to spice up Citigroup’s returns to at the very least 11% in the following few years, a critical goal that might help the bank’s stock get better. To get close, Citigroup needs to extend revenue, use its balance sheet more efficiently and cut costs. But revenue growth could also be hard to realize because the U.S. economy slows, leaving expense cuts the largest lever to tug, in accordance with analysts.
“Not one investor I’ve spoken to thinks they’ll get to that return goal in ’25 or ’26,” analyst Mike Mayo of Wells Fargo said in an interview. “If they can not generate returns above their cost of capital, which is usually around 10%, they haven’t any right to remain in business.”
Fraser put Titi Cole, Citigroup’s head of legacy franchises, in charge of the reorganization, in accordance with sources. Cole joined Citigroup in 2020 and is a veteran of Wells Fargo and Bank of America, institutions which have wrestled with expenses and headcount in the past.
Boston Consulting Group has a key role as well. The consultants have been involved in mapping out the bank’s organization charts, tracking key performance metrics and making recommendations.
Low morale, high anxiety
Although the project’s code name evokes the turquoise waters of Tahiti, employees have been anything but calm since Fraser’s September announcement.
“Morale is super, super low,” said one banker who left Citigroup recently and has been contacted by former colleagues. “They’re saying, ‘I do not know if I’m getting hit, or if my manager is getting hit.’ Individuals are bracing for the worst.”
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The last word variety of layoffs will probably be determined in coming weeks as the huge project moves from management layers to rank-and-file staff. But some things are already clear, in accordance with the people, who declined to be identified speaking concerning the confidential project.
Executives will see cuts beyond 10% due to Fraser’s push to eliminate regional managers, co-heads and others with overlapping responsibilities, they said.
As an illustration, chiefs of staff and chief administrative officers across Citigroup will probably be pruned this month, said certainly one of the individuals with knowledge of the situation.
Operations staff who supported businesses which have been divested or reorganized are also at higher risk of layoffs, said the people.
Citi’s statement
Even when Fraser publicizes a big reduction in staff, investors will probably have to see expenses drift lower before being convinced, said Pierre Buhler, a banking consultant with SSA & Co. That is due to the industry’s track record of announcing expense plans only to see costs creep up.
Still, it’s as much as Fraser and her deputies to log off on the general plan, and so they may opt to de-emphasize expense savings. The project is primarily about removing unnecessary layers to assist Citigroup serve clients higher, in accordance with a current executive.
Publicly, the bank has only said that costs would begin to ease in the second half of 2024.
Citigroup declined to comment beyond this statement:
“As we have said previously, we’re committed to delivering the complete potential of the bank and meeting our commitments to our stakeholders,” a spokeswoman said. “We have acknowledged the actions we’re taking to reorganize the firm involve some difficult, consequential decisions, but they’re the appropriate steps to align our structure to our strategy and deliver the plan we shared at our 2022 Investor Day.”
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