Citigroup Inc. (C) is cutting its workforce over the next few quarters as part of its effort to increase efficiency by reducing costs in a challenging operating environment. As a result, the company would incur job cut related charges in the fourth quarter.
In an investor conference Citi’s Chief Executive Vikram Pandit said that the job cut will involve around 4,500 positions or less than 2% of its total workforce. The elimination process will start this quarter. The layoffs would result in the company incurring $400 million charge in the fourth quarter.
Citi in fact has an efficiency goal of trimming 3% to 5% of its expenses or about $2 billion each year. In the first three quarters of 2011, the company has already achieved $1.4 billion in cost savings.
Besides the job cut and its related charges, the Citi chief also said that the company will likely incur an additional $500 million in charges in the fourth quarter. Of this, $200 million stems from accounting-related charges associated with its own debt and $300 million related to hedging losses resulting from tightening of credit spreads. The $500 million charge is, however, subject to the spreads at the end of the quarter. Yet, Citi will record $300 million from valuation adjustment due to the lowering of the Japanese corporate tax rates.
With the job cut decision, Citi joins the bandwagon of other biggies such as Bank of America Corp. (BAC) and UBS AG (UBS) who have opted for job cuts this year in the midst of economic weakness, market uncertainties and tighter regulatory norms that have restricted top-line growth. Hence, the focus is on pruning cost to increase efficiency and remain competitive.
We believe that such a measure is a strategic fit for Citi in this difficult economic environment and would help its profit figure in the days ahead. Citi shares currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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