Will Jane Fraser’s bold plan to overhaul Citigroup work?
Jane Fraser has a big year ahead of her. The Scottish chief executive of Citigroup, the US’ third-largest bank by assets, is eyeing a rebound in 2024 with the lender’s biggest shake-up in decades.
The bank announced on Friday that it would cut 20,000 jobs, some 10 per cent of its global workforce, by 2025 or 2026.
The news came as Citi posted its worst quarterly loss since the financial crisis in 2009, which Fraser herself called “very disappointing”. It was the only Big Four bank to report a loss on Friday.
Citi swung from a $2.5bn (£2bn) profit in 2022 to a $1.8bn loss last quarter, driven by the steep devaluation of Argentina’s currency, impairments from exiting Russia and $800m in costs tied to Fraser’s restructuring.
Her plan is to save as much as $2.5bn by streamlining the bloated bank, including job cuts and shuttering well-known arms of the business.
Investors are demanding for Citi to improve its performance. Shares and profit have lagged behind its Wall Street rivals, and the bank’s image in recent years has suffered from heavy fines tied to anti-money laundering regulation.
What is the plan?
Fraser became the first, and remains the only, woman to run a Wall Street bank when she took the reins at Citi in March 2021.
She announced the restructuring last September, confirming that a layer of leadership would be removed to give her more direct control over the business.
Fraser plans to tackle bureaucracy by reducing the number of management layers within the bank from 13 to eight.
Some 200 executives in the first two layers are set to shape and run the revamped bank.
Citi expects to take a $1bn hit from severance payments and other expenses tied to the restructuring.
The 5,000 job cuts in management are due to begin next week, according to a memo sent to staff, and be completed by the end of March.
“We are moving quickly, but we are doing it thoughtfully,” Fraser said in the memo. “Many considerations go into each phase of the work: we think about the right structure, we think about the right talent, and we think about how each decision advances our overall goal of simplifying the firm.”
Another cost-cutting drive involves pulling Citi’s retail operations out of 14 countries across Europe, Asia, the Middle East and Mexico.
In a surprise move last month, Fraser decided to shutter Citi’s entire once-envied municipal bond business, arguing it was “no longer viable given our commitment to increase the firm’s overall returns”.
The bank is ready to exit more businesses if they “don’t make sense for the go-forward strategy”, chief financial officer Mark Mason told reporters on Friday.
It remains unclear how many of the 20,000 total layoffs will hit Citi’s UK workforce. The bank employs around 16,000 people in Britain, with 11,500 based in London.
City PM reported in October that Citi was putting 250 jobs in the UK under review, including those in the layer down from the executive management team.
The bank declined to comment on Monday regarding how many UK roles it plans to cut.
Will it work?
Several CEOs before Fraser have unveiled similarly ambitious, yet unsuccessful, projects to shore up the bank. However, there are signs that this one might be different.
“This year may be a turning point for Citi after a messy fourth quarter,” Alison Williams, an analyst at Bloomberg Intelligence, told City PM
“Management is set to refocus on its core units and ‘transformation’ changes that aim to improve risk and controls, as well as its data architecture. A simpler structure should emerge after Q1 and drive $1bn of run-rate savings, with a 20,000 medium-term staff cut (excluding Mexico) generating $2bn to $2.5bn.”
Famously tough Wells Fargo analyst Mike Mayo made headlines earlier this month for saying Citi’s stock could more than double in the next three years.
He said Citi was his top banking stock and gave it a $70 one-year price target, with a base case of $119 in 2026. Citi closed at $51.44 at the end of 2023.
Shareholders’ confidence in the bank appears to be recovering, with Citi’s stock rising since November.
Even if Fraser’s job cuts are able to save $2.5bn, the bank would still have to maintain roughly four per cent annual revenue growth to meet her target of an 11 per cent return on tangible equity by 2027 – a key measure of profitability.
If its loan-loss provisions rise more than expected, however, revenues will need to be higher to offset additional costs.
Citi kept growing its net interest income – measuring the difference between what it pays out and receives in interest payments – in the fourth quarter, beating analysts’ estimates.
However, this tailwind is expected to drop off if the US Federal Reserve lowers interest rates from a 22-year high, with three cuts already penciled in for 2024.