Business | Investment
UK counts the cost as Citi jobs head east
Thousands of Citigroup workers in London could lose their jobs or see them transferred to Poland after the world's biggest bank unveiled plans to axe 17,000 jobs and shift thousands more to lower-cost econ-omies.
- By David Litterick, The Telegraph Group Limited, London 2007
- Published: 00:00 April 21, 2007
Thousands of Citigroup workers in London could lose their jobs or see them transferred to Poland after the world's biggest bank unveiled plans to axe 17,000 jobs and shift thousands more to lower-cost econ-omies.
After weeks of speculation, Citigroup finally detailed plans to radically shake up its operations in a bid to trim its cost base by billions of dollars a year.
Although the bank refused to say exactly how many of its 11,500 workers in the UK would be affected, some executives are thought to be facing the cull while many back office jobs will be shifted to eastern Europe.
London is a key hub of the Citigroup empire, housing its headquarters for Europe, the Middle East and Africa, but it is often ranked as the most expensive city in the world to do business.
Meanwhile, thousands of posts in New York City will be shifted to Buffalo in upstate New York, although almost 60 per cent of the cuts will take place outside the US.
Despite the job losses, Citigroup will continue to increase its headcount, as the company hires staff in countries like Brazil, China, Russia and India.
The cuts come after a three-month review led by Robert Druskin, who was appointed by chief executive Charles Prince with the remit to slash costs. The bank has come under severe pressure from shareholders after expenses rose twice as fast as revenues last year. While profits rose seven per cent, those at JPMorgan jumped 70 per cent.
Share rises
The bank's shares have risen an average of 3.6 per cent a year since Prince took over from Sandy Weill in 2003. Over the same period, JPMorgan and Bank of America have seen their stock rise over 30 per cent.
Citigroup said it would take a $1.38 billion hit as a result of the recast but would reap savings of $2.1 billion this year that would grow to $3.7 billion next year and $4.6 billion in 2009.
The job cuts first loomed more than a year ago when Saudi Arabian Prince Al Waleed Bin Talal, owner of a four per cent stake in Citigroup, insisted the bank take action. "We have to take draconian measures to control the costs," he said.
In outlining the future plans, Prince Al Waleed admitted: "The simple fact is that we have to make our middle and back office help us serve our clients better. Citi will be a much better integrated company - much more nimble, quicker and better able to grab opportunities around the world."
However, many analysts were disappointed that the cuts did not go far enough and said it was still unclear how Prince intended to reposition the company towards growth.
"There's nothing new in anything that was said," said Dick Bove, an analyst with Punk, Ziegel & Co. "What you have to hope as an investor is that they are going to grow revenues faster, rather than focus on expenses. I think this exercise was a media event to reduce investor complaints," he said. Other analysts said Prince had bought himself 12 to 24 months to improve returns before he is forced out.
For his part, Prince insists that the bank is positioned to grow. It is investing heavily to boost its position in emerging markets.
But Morningstar analyst Craig Woker said he doubted whether Citigroup would be successful.
"What does this ultimately do for them? Not a lot. I would much rather see moves toward strong revenue growth rather than trying to eke out some one-time gain from expense savings. If you cut too deeply, you end up potentially sacrificing more revenue than you're saving."
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