Citigroup to Cut at Least 10,000 in an Overhaul

Citigroup, the global banking giant, is stepping up its first major overhaul since it was forged by a merger nearly a decade ago.

Under pressure from investors, its chairman and chief executive, Charles O. Prince III, will either layoff or reassign more than 26,000 jobs as part of a broad effort to cut costs and streamline the bank’s unwieldy global operations.

Citigroup is planning to shed 10,000 to 12,000 jobs this year, according to people briefed on the situation. Some 14,000 additional positions will be lost to attrition or relocated from high-cost locations — including London, Hong Kong and New York, where the company is based — to less expensive areas like India, Buffalo, Cincinnati and northern New Jersey.

Roughly 8 percent of the company’s 327,000 employees, fanned out across the globe, could be affected.

Citigroup’s consumer and credit card operations will bear the brunt of the job losses, but the cuts will also extend to its other main businesses, including its investment bank.

The company is also considering taking a charge of at least $1 billion against earnings related to the overhaul. The planned reductions, which are expected to be announced early next month, follow calls by some shareholders for more drastic actions at Citigroup, where operating expenses have outpaced revenue.

In 2006, Citigroup’s expenses rose 15 percent, to $52 billion, while revenue rose 7 percent, to $89.6 billion. At rivals like Bank of America and J.P. Morgan, the reverse has been true — with revenue growing faster than expenses. Citigroup’s stock has also been treading water for the three and a half years Mr. Prince has been at the helm.

In December, Mr. Prince pledged that he would create a “leaner, thinner” Citigroup. Now, both his career and the company’s prospects are on the line.

“This whole year is important for Chuck in terms of showing Citigroup can, in fact, get its arms around managing the challenges that is this far-flung company,” said Guy Moszkowski, a financial services analyst with Merrill Lynch. “The scale and the credibility of the expense exercise are going to be important in helping him show he has control.”

With investors increasingly impatient, Mr. Prince has made a series of changes in an effort to turn around the company. In December, he installed Robert Druskin as the chief operating officer and gave him the task of conducting a “structural review” by the end of this month with an eye toward reaping cost savings.

In late February, he hired Gary L. Crittenden, American Express’s former financial chief and restructuring specialist, to bolster the bank’s fiscal management.

Alongside the cost-cutting effort, Mr. Crittenden is using his first few weeks on the job to conduct a similar assessment of the company’s overall financial structure and operations. Working with Citigroup’s senior management team, he is trying to find ways to instill expense discipline and identify underperforming assets, according to people briefed on the situation.

Citigroup has long conducted exhaustive financial reviews of its major businesses, separately examining its credit card or fixed-income divisions as stand-alone units. But this appears to be the first time the company’s management is conducting a top-to-bottom scrubbing of its overall financial position. It also could foreshadow a broader overhaul.

Mr. Prince’s predecessor, Sanford I. Weill, orchestrated the 1998 merger of Travelers and Citicorp that formed the company. Under Mr. Weill’s tenure, big acquisitions fueled Citigroup’s growth. But severe underinvestment and a decentralized management approach left the company’s businesses reeling. Since Mr. Prince took over in October 2003, he has been on an ambitious campaign to remake the company. He has laid out a strategy to drive internal and international growth, calling for heavier investment spending and a more coordinated business model.

But the success of those plans have been hamstrung by his failure to rein operating expenses. Last summer, Prince Walid bin Talal of Saudi Arabia, one of Citigroup’s big shareholders, called for “draconian measures” to cut costs. In the face of growing investor pressure and a challenging environment for banks, Mr. Prince has cut back on some of the planned investment spending and ratcheted up the acquisition effort, most recently with a $13.4 billion takeover offer for Nikko Cordial, a big Japanese brokerage firm and bank.

At a news conference in India yesterday, Mr. Prince declined to comment on a report in The Wall Street Journal that Citigroup would eliminate as many as 15,000 jobs.

A Citigroup spokeswoman said that the company was continuing its cost-cutting review and that the company would announce details of its plans on or before April 16. That is when the company will release its first-quarter earnings.

Investors, it seemed, already factored the news into their analysis. Citigroup shares closed yesterday at $51.54, down 18 cents.

“Job cuts are only a piece of the Citi puzzle,” said Jason M. Goldberg, a banking analyst with Lehman Brothers. It is about improving processes and “making systems changes,” he said. “And we still need to see those investments made in 2006 start generating greater revenues in 2007 and beyond.”

Citi’s consumer and credit card operations will see most of the job cuts, with customer service employees and back-office workers hardest hit. The company is engaged in a five-year effort to streamline technology systems and Mr. Prince has made eliminating duplicate functions, like separate legal staffs, a priority.

“Each of our consumer businesses — mortgages, cards, consumer finance — has its own separate middle- and back-office business,” Mr. Prince told investors in mid-January. “Do we need separate middle and back offices for each of those businesses?”

Citi’s investment bank will probably eliminate many back-office jobs, but the business leaders are also taking a harder look at less productive junior managers, including highly paid workers between the vice president and managing director ranks, according to people briefed on the situation. The goal is to increase revenue per employee — a measure of productivity — and bring it up to par with Goldman Sachs and other high-performing investment banks.

Across the company, Citigroup senior managers are being asked to find ways to eliminate overlapping jobs and unclog its vast bureaucracy, not just cutting back on magazine subscriptions and the use of company limousines. Mr. Prince, for example, has frequently questioned the logic of having three separate regional headquarters for every main business unit, each with its own staff.

While many of the cuts are expected by the end of this year, the timetable for the overall cost-cutting program is unclear as is the number of positions that will be lost to normal attrition. It is also unknown how many workers will need to relocate.

Many jobs are expected to head offshore to places like India; with 22,000 employees there, Citigroup already has a large Indian presence. About 12,000 of those workers process credit card and mortgage payments and perform other back-office functions. Sanjay Nayar, the bank’s top executive in India, told employees this month that he expects that group to add about 200 workers a month.

“We will consolidate and simplify our back offices around the world,” Mr. Prince said during a swing through New Delhi. “Traditionally, India has been a beneficiary of that.”

Other jobs, however, could be relocated in the United States. The company wants to take advantage of lower wages and consolidate its operations. Citigroup, for example, recently said it was adding 650 jobs in Amherst, N.Y., more than doubling the number of employees in the Buffalo suburb. It is planning to construct a 150,000-square-foot building that will consolidate many back-office functions for its corporate and investment bank.

In Blue Ash, Ohio, just outside Cincinnati, a new information technology operation for the consumer business will employ about 1,000 workers by the end of the year. Economic development officials there say the bank plans to add about 20 to 30 workers a week, both from in and outside of the region. Once it sheds an 11-story building in downtown Manhattan, some of its 1,500 employees will move to a Jersey City office.