Citigroup To Release Cost-Cutting Plan On Wednesday

Getty Images

Citigroup Chairman and Chief Executive Charles Prince said Monday he would release details of cost-cutting steps later this week, including the consolidation of some operations and moving others to lower-cost locations.

In a memo to employees made available to The Associated Press, Prince said the cuts were aimed at "eliminating expenses while advancing our core strategic growth objectives." The process, he said, "has been and will be challenging."

He sketched broad outlines of the overhaul, but said specifics would be released at a Web conference Wednesday. Prince indicated the cutbacks would be throughout Citigroup's operations worldwide. Citigroup, the nation's largest financial institution, has more than 327,000 workers in more than 100 countries.

Media reports about the financial review, which has been under way since the fourth quarter, have said 26,000 workers could lose their jobs or be reassigned.

Cost savings could approach $2 billion a year, they said.

Shares of Citigroup declined.

In the memo, Prince said: "We will consolidate certain back-office, middle-office and corporate functions at the business, regional and headquarters levels to eliminate duplication of effort and focus, instead, on building truly efficient, world-class business operations with scale."

Prince also said some operations would be moved "to lower-cost locations." And, he said, there would be continuing efforts aimed at "rationalizing our technology platforms to operate more efficiently and effectively."

Prince has been under pressure to get a handle on the bank's burgeoning expenses, which grew 15% last year, twice the pace of revenue growth.

John McCune, director of Banking Research at SNL Financial, a research firm based in Charlottesville, Va., said Citigroup's efficiency ratio - its operating expenses divided by recurring income - had been moving in the wrong direction.

The ratio, which he said represented "how much it cost you to make money," rose from 60% at the end of 2005 to 66% a year later. Cost-cutting, he added, is "the classic reaction to improve efficiencies."

Will it be enough? "I don't know if the Street is ever satisfied," McCune said of Wall Street analysts and investors. "But it is a step in the right direction."

The disclosure about Citigroup's overhaul came as the bank announced it will purchase a the bank of Overseas Chinese, a mid-sized Taiwanese bank, for $425 million in the U.S. financial group's latest expansion in Asia.

Last month, Citigroup announced it was launching takeover bid worth up to $13.3 billion for Japan's Nikko Cordial, the country's third-largest brokerage.

In December, Citigroup acquired an 85.6% stake in the southern China-based Guangdong Development Bank for $3.1 billion.

Prince wants to boost the bank's international business to contribute to 60% to total revenue, up from the current 45%.