The US bank Citigroup recently announced that it would lay off ten percent of its senior managers. Apparently the Wall Street banking sector is also being affected by the global economic slowdown – an assessment of the situation.
• Citigroup plans to lay off 300 senior bankers
• Measure is part of current business restructuring efforts
• Shares in Wall Street banks have performed rather sluggishly so far in 2023
The banking sector is actually considered to be one of the industries that benefits most from high key interest rates. The higher loan interest rates allow banks to increase their margins and thus record higher profits. The quarterly reports from US financial institutions for the third quarter actually showed such an increase in profits thanks to higher interest rates. For example, the largest US bank, JPMorgan, increased its surplus by 35 percent compared to the same quarter last year. However, not everything seems to be going optimally on Wall Street.
Citigroup announces massive job cuts among top managers
There are increasing signs that US banks are also suffering from the global economic downturn. Citigroup announced that it would lay off ten percent of its senior managers – i.e. highly qualified, very well-earning bankers. Around 300 senior employees will be affected by the job cuts. Citigroup currently has around 240,000 employees.
Citigroup justifies this step with a restructuring of the business areas. “Today we introduced to our colleagues the next stage of changes across many of our businesses and functions as we continue to align Citi’s organizational structure with our new, simplified operating model,” Yahoo Finance quoted Citigroup in an official corporate statement. “As we have acknowledged, the actions we are taking to restructure the business involve some difficult and consequential decisions, but we believe they are the right steps,” Citigroup added in the document.
Citigroup Chief Executive Jane Fraser is banking on a restructuring initiative announced in September to breathe new life into its declining share price and address a long-standing problem of high costs. She considers this to be Citigroup’s most significant operational change in nearly two decades. Fraser took the helm at Citi in February 2021, long after the stock had begun to underperform its peers. She has decided to no longer divide the bank into two large business areas as before, but rather into five different units that report directly to her. According to her, this step will lead to a reduction in the number of staff. “We will be saying goodbye to some very talented and hard-working colleagues,” Fraser wrote when she announced the changes in September.
Citigroup is also exiting consumer businesses in other parts of the world, part of an earlier plan announced two months after Fraser took over as CEO in 2021. The original plan called for the exit of 14 consumer stores in Asia, Europe, the Middle East, Africa and Mexico. Citigroup has now closed nine of these, including Australia, Malaysia, India and Taiwan. A few weeks ago it announced the completion of the sale of its consumer businesses in Indonesia. Singaporean bank United Overseas Bank (UOB), which acquired four of Citigroup’s Asian branches, said in a separate statement that the acquisitions had added 5,000 employees.
This is how Citigroup shares perform compared to their peers
Citigroup had already announced extensive restructuring under Fraser’s predecessors. But bank insiders stress that the big difference this time is that Fraser is cutting the middle management level that originally reported to the CEO. However, since she took office, Citigroup shares have fallen significantly again, almost twice as much as any other major bank in the same period.
So far, Fraser’s restructuring measures don’t seem to have really convinced investors. This year too, the Citigroup shares are not really looking to take off, even if the company’s profits have recently increased slightly. Over the year, the Citigroup share is currently down almost one percent at a current price of $45.08 and is therefore well behind the industry leader JPMorgan, whose shares have gained a good 14 percent since the beginning of January. At least Citigroup has so far performed noticeably better than Bank of America (BoA) (minus eleven percent) and similarly well as Goldman Sachs (minus 1.65 percent) (all prices as of November 27, 2023).
2023: Difficult year for Wall Street banks
The sluggish share price performance of US banks, as well as Citigroup’s cuts, underscore that 2023 is a difficult year for Wall Street and the banking sector in general. Major banks, which have large commercial and investment banking divisions, are struggling to cope this year with a slowdown in business deals, an unpredictable economy and the impact of interest rate hikes. In addition, the IPO lull is particularly affecting investment banks.
Expected bonuses in the financial services industry will remain flat or decline, according to a third-quarter report published by Johnson Associates. In both investment banking and commercial banking, compensation incentives are expected to remain unchanged from 2022, falling below the levels of the previous three years.
In addition, it was not just Citigroup that announced job cuts; this also affected all US banking heavyweights with the exception of JPMorgan. By the end of October, a total of 20,000 jobs had already been cut. Wells Fargo has been hit particularly hard: since the third quarter of 2020, the traditional US bank has been forced to lay off 40,000 employees. The number of employees at the large investment banks Goldman Sachs and Morgan Stanley has also recently declined. One thing is certain: Wall Street has seen better times. Investors in US banks are now hoping for an early economic recovery, which could also help the share prices of Citigroup, Goldman Sachs & Co. jump.
Editorial team finanzen.net
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