Daily Management Review

CEO Of Citigroup Orders Significant Management Changes And Job Cutbacks


CEO Of Citigroup Orders Significant Management Changes And Job Cutbacks
In a significant reorganisation, Citigroup will eliminate a layer of management and make employment cuts. This will give CEO Jane Fraser more direct power as she works to streamline the Wall Street behemoth and raise its stock price.
The CEO will be directly responsible to the heads of the bank's five divisions, and the bank will eliminate regional leadership positions outside of North America. Although job losses are anticipated, it is yet unknown how many and how much they will cost.
"We have taken hard, consequential, tough decisions here," Fraser told investors in New York on Wednesday. "They are not going to be universally popular within our bank. It's going to make some of our people very uncomfortable. I am absolutely fine with that ... It is absolutely the right thing to do for our shareholders."
Following Chief Financial Officer Mark Mason's announcement that the company's expense guidance for the year would remain unchanged, shares increased by 1.7%.
The extensive restructuring is a further development in Fraser's plan to increase profitability and streamline the bank since she assumed leadership in 2021. Despite selling companies and attempting to address regulatory issues, Citi's stock price has trailed behind that of its competitors.
A 2020 consent order from regulators requiring it to fix multiple "longstanding deficiencies" in its internal controls is still a problem for the third-largest bank in the United States.
Shahmir Khaliq has been designated as Citi's president of the services division, along with Andrew Morton in markets, Gonzalo Luchetti in U.S. consumer banking, Peter Babej in investment and corporate banking on an interim basis, and Andy Sieg in wealth when he joins the business later this month.
"Citi will cut out non-productive layers of management and reorganize with a flatter structure that will certainly create savings on the balance sheet," said Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, who holds Citi shares.
For the position of banking head, the bank is looking to employ externally. Under the leadership of Ernesto Cant, its new head of international, it will combine non-American enterprises. It reduced management layers in Personal Banking and Wealth Management and what was formerly called as its Institutional Clients Group, which was once its largest division.
Fraser cited the elimination of 35 committees as an example of how the changes have helped to streamline the bureaucracy.
Fraser stated in a note to staff members obtained by Reuters that the reorganisation is likely to result in resignations. Next week, she will host a town hall.
According to reports citing unnamed persons acquainted with the situation, the new division heads will decide on the second and third layers of management, which are anticipated to be announced in November and January, respectively. 
"All of this, at the end of the day, is increasing accountability in the organization," Fraser told investors.
Despite Wednesday's increase in share price, the company's book value remains less than half that of competitors Wells Fargo and Bank of America, as well as JPMorgan Chase, which is valued at 1.4.
"Investors are only going to give Citigroup credit for hard numbers meeting their goals," said Eric Compton, banking analyst at Morningstar. "These changes seem fairly nuanced - all of the key players from 2022 are still in place."
Separately, CFO Mason predicted that the bank's trading revenue will increase in the third quarter by a percentage in the low single digits, while the revenue from investment banking will remain stable or slightly increase.