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Citigroup Laying Off 11,000 Employees

This article was written by in Banking. 12 comments.


As part of a measure to cut ongoing expenses for the benefit of major shareholders, Citigroup has announced a massive reduction of employment, affecting over four percent of the company’s workforce across the world. The new CEO, Michael Corbat, has determined the best course of action to increase the value of the company for investors is to scale back operations. Seemingly in direct response and correlation to the announcement of the four percent reduction, a plan to lay off 11,000 employees, Citigroup’s stock price rose four percent by ten o’clock this morning.

1,900 of the 11,000 jobs eliminated will come from the institutional clients division. 6,200 will come from the consumer banking division, and the company will eliminate 2,600 operations and technology positions. The company projects that these reductions will cause lost potential revenue of about $300 million a year, but will save $900 million in expenses next year and $1.1 billion each year starting in 2014. To account for the reduction, Citi will write off $1 billion this year. That $1 billion is a direct reduction of pre-tax income for the bank, promising to greatly reduce the company’s fourth quarter tax bill.

Citigroup is also cutting bonuses, at least symbolically. In the one division said to face bonus reductions, the securities trading division, average employee bonuses will decrease between five and 10 percent. Executive bonuses won’t be damaged nearly as much, if at all. But let’s face it; if they were, when your $1 million bonus is only $900,000, while shareholders have seen declining value, customers are abandoned through closing branches, and rank-and-file employees are getting laid off, you’re still doing pretty well.

The layoffs will affect global customers the most, with operations ceasing in Romania, Turkey, and other nations where the bank isn’t meeting its goals, but branches in the United States will close as well. When U.S. based operations are reduced, customers in this country will likely see more difficulties with customer service.

A few months ago, the firm handling public relations for Citigroup’s credit card division invited me to a concert in New York City. I decided to attend, and I’m glad I did. Alicia Keys had an amazing performance. The concert was part of a massive advertising campaign for Citi credit cards, and the television commercial featuring Alicia Keys advertising Citi’s exclusive cardmember benefits received a lot of airtime. The purpose of the invitation was to pitch these benefits to the press. I had thought it would have been an opportunity to receive answers to some questions about Citi’s products, but the product manager I was supposed to meet didn’t show up, and the public relations team was more interested in pitching than discussing once we were talking face to face.

I expect this move towards cost-reduction will eventually find its way to the credit card division, affecting some of the best benefits for responsible credit card users, like cash back programs. I expect the heavily-marketed “Citi Rewind” benefit, which allows customers to receive an automatic refund if an item they purchase drops in price after they purchase it — with some restrictions, of course — will not last much longer under this new doctrine. Citi’s credit card division is not automatically affected by changes to the global divisions or the institutions investment division, but when the CEO of the company makes such a broad move as this major cost-reduction plan, it’s bound to eventually affect every nook and cranny of the company.

I reached out to a Citi spokesperson who handles the credit card division to see if the company has any thoughts about how this will affect its customers. From a banking perspective, I expect the number of U.S. branches to be closed to be relatively small and in areas with low population. Overall, it won’t affect many saving and checking customers in this country, but it might make it difficult for some customers, perhaps those in rural areas who already have a lack of choice in their local banking services, to have solid money management options outside of check cashing storefronts and payday loan companies.

This is a good example of how shareholders’ needs don’t always coincide with customers’ needs. In the end, shareholders only win when customers are best served, but when a company takes drastic measures to cut costs such as this, customers lose so shareholders can win in the short term. Credit unions are better than retail banks in this respect — the customers are effectively owners — but that doesn’t necessarily make credit unions always the best choice.

If this restructuring eliminates your main bank branch, follow these steps to switch your bank. Consider doing more of your banking with online savings and online checking accounts, to reduce your reliance on brick-and-mortar locations which may come and go.

With Michael Corbat’s history in taking drastic actions to cut expenses, this is the job he was hired to do. Do you think it’s the right long-term strategy for Citi? Would the bank be better off by reducing expenses in the form of executive bonuses rather than laying off 11,000 employees? It Citi leading the way for more industry cutbacks in 2013?

Photo: Flickr
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Published or updated December 5, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar Kurt @ Money Counselor

As of this writing Citi’s stock is up nearly 6%, so apparently investors as a whole approve of the strategy.

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avatar Jacob @ iheartbudgets

Like he said “customers lose, shareholders win”. Kinda of a bummer for anyone losing their local branch…

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avatar Financial Samurai

What’s good for employers is not so good for shareholders and vice versa. It’s the most interesting dilemma indeed!

I just hope everybody figures out how to negotiate a severance package BEFORE it’s too late. It’s going to get UGLY over the next 3 months in the finance industry!

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avatar Money Beagle

That Alicia Keys commercial actually gets on my nerves because I think it’s pretty unlikely (read: impossible) for an average Joe to get the opportunity to get to go backstage to an Alicia Keys concert and have her make eyes at you to boot.

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avatar Luke Landes ♦127,485 (Platinum)

So here’s what I saw at the Alicia Keys concert — which is the exact event that the commercial alluded to. As I understand it, there was one concert on the east coast (Alicia Keys) and one on the west (might have been Maroon 5 or Bruno Mars… I don’t remember). Tickets were only available to cardmembers, and most concertgoers bought just the regular tickets and did not have the “backstage” VIP experience.

Before the show, the VIPs (as press, I was *not* a VIP, thus I did not do this) lined up to “meet and greet” Alicia before the concert. I didn’t see what went on in the meet and greet room, but I’m pretty sure it wasn’t anything more than a handshake, a few words, and a photograph, with a healthy security team hanging around. I expect there was no flirting involved.

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avatar CeridianMN

“The new CEO, Michael Corbat, has determined the best course of action to increase the value of the company for investors is to scale back operations.”

“This is a good example of how shareholders’ needs don’t always coincide with customers’ needs.”

I think the opening and closing of this article point to a deeper problem that has developed in America, and likely the rest of the world. The CEO has made a decision apparently solely based on what benefits the shareholders the best. In your closing you posit that the shareholders and customers needs aren’t always aligned.

Here’s my take. Think back. When was the last time we were referred to as customers? At Target we are guests. Studies talks about consumer confidence. The media reports on consumers and shoppers. Even here we are consumers, not customers. When was the last time you heard that “the customer is always right?” I believe that the big business perception is that the customer is still always right, but the customer has shifted. To Executives the customers are not the people purchasing the goods/services the company provides, but the shareholders. In turn the business no longer strives to meet the needs of the purchasers, but the needs of the shareholders as they are the new customers.

While some may argue that these customers are really every person in America I would argue that it has been abstracted away from them via investment portfolios, index funds, and mutual funds. How much of a voice do most Americans really have in the companies they supposedly hold stocks in? How much of a voice does a company benefits manager have in the companies of the mutual funds it allows its’ employees to invest in? How much of a voice does a mutual fund manager even have?

I believe we will continue to see these types of decisions for the foreseeable future where “shareholder” concerns drive business decisions. In all honesty, If I was running a public company in this day and age my first goal would be to become private so that we would be able to set ourselves up for long-term growth instead of submitting my power to the short-term needs of a group of people in suits running business that exist solely to make some money turn into some more money as quickly as possible. My gut is that this is something we will not see as the boards of companies that make major staffing decisions at these levels are generally dominated by these very same shareholders. Any CEO that would have as a priority to become private simply wouldn’t be put in a position to bring a company private.

To more specifically answer the questions, this is not the right long-term strategy for Citi – but it isn’t meant to be. It’s meant to be the right short-term strategy for shareholders.

How would the bank be best served to reduce expenses? Without a more clear picture of where the money flows within the organization its hard to answer that. The level of internal accounting detail required to make that type of speculation is not available to the general public. As a standard answer it would be easy to say yes, cut executive bonuses. A single person with $1,000,000 to spend will generally do less for the economy than 100 people with $10,000 to spend. (One Tesla creates fewer jobs than 100 Harleys for instance.) A company with a lot of well compensated people (increasing their level of happiness with their jobs and level of goodwill towards the company) should be more productive than one with a few well compensated people and many fearing the next round of RIFs. Even just as a symbolic gesture CEOs who take lowered compensation generally rally their employees to help make the workplace better. Also, who can better suggest ways to save money, one guy in an office at the top, or the hundreds at the front lines?

I bet they are leading the way for more cutbacks. The results are already in. The “shareholders” saw an instant gain so they will now pressure other companies to act similarly in hopes of similar gains.

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avatar Financial Samurai

It’s always been about the shareholders mate. Always. It’s up to employees to navigate around the landmines and empower themselves with knowledge.

Nobody will look out for you more than #1.

Sam

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avatar SwearJar

Bingo. I think these 2 well stated simple sentences by CeridianMN is something that every investor, employee, and consumer should always remember.

>>
To Executives the customers are not the people purchasing the goods/services the company provides, but the shareholders. In turn the business no longer strives to meet the needs of the purchasers, but the needs of the shareholders as they are the new customers.
>>

I can’t imagine prioritizing shareholders over purchasers could possibly continue to be successful deep long term, but for any corporation the size of Citi it can absolutely be an ongoing successful strategy for a decade or two (until there is nothing left to cut or sell off).

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avatar jim

As I read it, it seems like they expect to lose about $300M in revenue but save around $900-1B in expenses. Thats certainly a long term win for Citibank and its shareholders. The $300M loss in revenue means losing some business. If you close up shop in Romania then they will lose Romanian customers entirely. No longer serving those customers may be ‘bad’ for those customers. But its stupid for customers to spend money serving customers at a loss. I don’t see anything here that says that Citi services or quality will suffer in general. 4% staff cut is not a drastic cut at all frankly.
Its quite likely the vast majority of customers won’t even notice a difference. They already cut 14k jobs since ’09 and I didn’t notice any difference.

I don’t like mass layoffs in principal. I think companies ought to manage their staff better or handle such reductions through attrition. Its likely Citi would have 4% turnover in a year period anyway, so doing this via layoff seems unnecessary to me. Unless they plan to make the cuts via attrition / turnover which is OK. I mean theres a big difference between handing out 11k pinkslips on friday afternoon or not replacing 11k people who leave the company over the next 6-12 months.

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avatar Lance @ Money Life and More

I would think that their credit card division is very profitable. If they scale back rewards they’ll probably make even more money because we know the majority of reward hunters never pay a dime in fees or interest to the banks. I hope this doesn’t happen, but I think you have a good hunch.

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avatar Ceecee ♦53 (Newbie)

It is not surprising but it still steams me that the executives do not share in the cuts to pay. Ah, the power of the 1%. I guess the takeaway from this to everyone is, it pays to be the boss. A family member has had Citi stock for years and has lost a fortune in it. On that end, It will take draconian measures to boost that stock to half of what it once was.

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avatar qixx ♦1,895 (Half-Dollar)

One thing worth noting is that the 11,000 jobs are saving the company $900 million. That works out to around $82,000. The average salary listings for Citigroup on Glassdoor.com for the departments listed show in the range of $65,000-$100,000. This means Citi is not saving anything from benefits. I don’t think their math works out that well.

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