Shares of Citigroup Inc (NYSE: C) jumped over 6% on Wednesday after the bank announced it would lay off 11,000 workers or about 4% of its total workforce. Additionally in the statement, the bank said it had to pay a pretax of $1.1 billion this quarter due to the layoffs. This announcement is the first major event for new CEO Michael Corbat, who took over back in October of this year. The news received mostly a positive response from Wall Street as the bank continues its cost cutting campaign to improve profits.
Citigroup, as a part of the announcement and prior, has said they will close 44 branches here in the US, 15 in Korea, 14 in Brazil, 7 in Hong Kong and 4 in Hungary. This explains why 6,200 of the jobs lost will come from the bank’s consumer banking sector. “This is just the beginning,” Anthony Polini, a financial analyst at Raymond James who has a “strong buy” rating on Citigroup says (USA Today). Credit Agricole Securities analyst, Mike Mayo, told CNBC that there needs to be more changes, radical changes to truly improve the bank’s standing. The analyst pointed to the possibility of closing down some of its business operations that are currently under performing. The idea of closing business units will cut costs associated with the under performing unit and save the firm cash.
Citigroup has had a rough run since 2008 when the bank almost went under and, consequentially, took taxpayer bailout money. Since then, the bank has had a rough time rebounding from the financial crisis, as the overall economic condition in the US continues to show sluggish gains. Rightfully so, the bank was more focused on surviving the downturn than making efficiency tweaks. Unfortunately, once the bank was stable financially, they were not rigorous enough with their cost cutting and efficiency efforts, which are continuing today. This has lead to several years of flat gains to losses and an uneasy investment public.
The bank now needs to focus on the future and move on from its recent past. Today’s announcement got a thumbs up from Wall Street because it shows that CEO Corbat could finally put the bank back on track over the next few years. However, as the analysts said, they are far from completing their restructuring. The board of directors need to seriously weigh each of the bank’s different businesses, determine which units are dragging down profits and close down those units. Until then, I cannot fully believe that Citigroup’s restructuring is complete.
The bottom line here is that we are starting to possibly see the beginning of Citigroup’s true recovery with a new CEO at the wheel. The bank desperately needs a shake up and a new mindset because the past few years are best left forgotten. Moving forward, I believe we could see the new and improved Citigroup emerge in five years, if they continue to make cost cutting and restructuring a top priority.