(Updates with analyst comment in the 12th paragraph.)
Dec. 7 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to reduce costs amid slumping revenue and “unprecedented” market conditions.
The lender will take a fourth-quarter pretax charge of about $400 million tied to the reductions, including severance, Pandit said yesterday at an investor conference in New York. Citigroup, the third-biggest U.S. bank by assets, employed about 267,000 people as of Sept. 30, according to a filing.
“Financial services faces an extremely challenging operating environment with an unprecedented combination of market uncertainty, sustained economic weakness in the developed economies and the most substantial regulatory changes we have seen in our lifetimes,” said Pandit, 54. “These trends will likely significantly affect the competitive landscape in the coming years.”
Pandit is cutting staff as the European sovereign-debt crisis persists and banks prepare for regulations on minimum capital levels to take effect, threatening revenue from trading and investment banking. Citigroup said in September it would limit hiring to “critical” jobs to control costs.
“The 4,500 is a drop in the bucket for them, particularly when you consider how big they are and their global scope,” Nancy Bush, an analyst at SNL Financial, a bank-research firm in Charlottesville, Virginia, said in a phone interview. “I’d be suspicious that this may be the tip of the iceberg.”
Financial firms worldwide have cut more than 200,000 jobs this year, up from about 58,000 last year and 174,000 in 2009, according to data compiled by Bloomberg. Bank of America Corp. CEO Brian T. Moynihan said the Charlotte, North Carolina-based lender plans to eliminate 30,000 jobs in the next few years.
“For the banking sector, both investment banking and commercial banking, the overhead expenses are too high,” Gerard Cassidy, an analyst at Royal Bank of Canada in Portland, Maine, said in a phone interview. “The industry needs to do a better job bringing that expense level down to reflect the lower revenues vis-a-vis what they were two or three years ago.”
The 4,500 job cuts announced yesterday amount to 1.7 percent of Citigroup’s workforce on Sept. 30 and would still leave the lender with almost the same amount of staff it had at the end of 2009, when the firm employed about 265,300 people, regulatory filings show.
Pandit is investing in emerging markets such as Brazil, China and India, which now account for more than half of the bank’s profit. Those economies may expand at 6 percent a year through 2015, eclipsing developed markets, which may grow less than 2 percent, Pandit said.
“Developed economies are undergoing a long period of deleveraging of consumer, financial, corporate and government balance sheets, which will drive slow growth for years,” Pandit said at the conference sponsored by Goldman Sachs Group Inc. “By contrast, emerging-markets growth is expected to continue, fueled by population growth, the rise of a powerful consumer base in the middle class and a growing share of world trade.”
Citigroup opened 65 branches through the first three quarters of this year, mostly in Asia and Latin America, the bank’s consumer head, Manuel Medina-Mora, said Nov. 16.
Pandit should cut Wall Street trading jobs as regulators prepare rules which may crimp profits, said Richard Staite, a London-based analyst with Atlantic Equities LLP. Fixed-income trading revenue for the third quarter fell 33 percent to $2.3 billion from about $3.5 billion in the same period last year while equities-trading revenue tumbled 73 percent to $289 million from $1 billion, excluding an accounting gain.
‘Weakness in Trading’
“Given that there’s likely to be a secular decline in fixed-income trading revenue, particularly in developed markets, they should be reducing staff in that area,” Staite said in a phone interview. “The weakness in trading revenues is likely to accelerate a switch of emphasis within Citigroup, away from volatile trading and more towards more stable consumer and corporate banking.”
Pandit didn’t say where the staff reductions would occur and Jon Diat, a bank spokesman, declined to specify which countries would have the steepest cuts. Pandit has cut more than 100,000 jobs since he became CEO in December 2007 through dismissals and sales of distressed assets and businesses from the New York-based lender’s Citi Holdings unit.
Citigroup slipped 31 cents, or 1 percent, to $29.44 at 11:39 a.m. in New York. The shares slumped 37 percent this year through yesterday.
Pandit also said that the bank will post a negative adjustment of $300 million to its deferred tax assets in Japan following a reduction in that country’s corporate tax rates.
Some of the job cuts at Citigroup will come from the firm’s proprietary-trading operations as regulators seek to restrict banks from betting shareholder cash, Pandit said. The firm said in October that it’s closing the Equity Principal Strategies unit, a proprietary-trading operation run by Sutesh Sharma.
Citigroup posted a 74 percent increase in third-quarter profit, aided by a $1.9 billion accounting gain that softened the impact of lower trading and investment-banking revenue. Excluding the accounting figure, the bank’s revenue for the period fell 8 percent to $18.9 billion.
Most of that accounting gain stemmed from a credit- valuation adjustment, or CVA. This required Citigroup to book a gain on the declining value of its debts.
The spreads have tightened this quarter, Pandit said. If the fourth quarter ended on Dec. 5, the bank would post a $200 million negative CVA, compared with a $1.9 billion gain in the previous quarter, he said.
Citigroup’s lending business in its securities and banking operation also would record a loss of about $300 million tied to hedges if the quarter ended on Dec. 5, compared with a $650 million gain in the third quarter, Pandit said. Hedges are bets that firms make when seeking to curb potential losses on existing positions.
--Editors: Peter Eichenbaum, Dan Reichl
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