In a significant restructuring move, Citigroup is set to simplify its operations by reducing managerial layers and cutting jobs, granting CEO Jane Fraser more direct control, reported Reuters. The reorganization aims to enhance the performance of the Wall Street institution and boost its stock value.
Under the new structure, the heads of the bank’s five divisions will directly report to the CEO. Additionally, regional leadership positions outside North America will be eliminated. While the exact number of job cuts and their financial impact remain uncertain, CEO Jane Fraser assured investors in New York that these were necessary but challenging decisions.
Fraser stated, “We have taken hard, consequential, tough decisions here. They are not going to be universally popular within our bank. It’s going to make some of our people very uncomfortable. I am absolutely fine with that … It is absolutely the right thing to do for our shareholders.”
Following Chief Financial Officer Mark Mason’s announcement that the company’s expense guidance for the year would remain unchanged, Citigroup’s shares saw a 1.7% increase.
This sweeping reorganization is part of Fraser’s strategy to enhance profitability and streamline Citigroup since assuming leadership in 2021. Despite divestitures and regulatory improvements, Citigroup’s stock performance has lagged behind its peers.
The third-largest U.S. bank is still addressing a 2020 consent order from regulators, requiring the rectification of several “longstanding deficiencies” in its internal controls.
Citigroup has appointed Shahmir Khaliq as the head of the services unit, Andrew Morton for markets, Peter Babej on an interim basis for investment and corporate banking, Gonzalo Luchetti for U.S. consumer banking, and Andy Sieg for wealth, starting later in the month.
Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, which holds Citigroup shares, commented, “Citi will cut out non-productive layers of management and reorganize with a flatter structure that will certainly create savings on the balance sheet.”
The bank is actively seeking external candidates for the banking head position and will consolidate non-U.S. businesses under Ernesto Cantú, the newly appointed head of international. Management layers in the Institutional Clients Group, formerly the largest division, as well as Personal Banking and Wealth Management, have been streamlined, with 35 committees eliminated to reduce bureaucracy.
Fraser acknowledged that these changes might lead to some departures and announced a town hall meeting for the upcoming week. The new division heads will make decisions concerning the second and third layers of management, with announcements expected in November and January, according to anonymous sources familiar with the matter.
Fraser emphasized that all these changes are geared toward increasing accountability within the organization. Despite the rise in shares, Citigroup’s valuation remains below half of its book value, while competitors like Wells Fargo and Bank of America are above 0.8, and JPMorgan Chase is at 1.4.
Eric Compton, a banking analyst at Morningstar, pointed out, “Investors will only recognize Citigroup’s achievements if they meet their goals with concrete results. These changes may appear nuanced, as all key players from 2022 remain in place.”
In a separate update, CFO Mason projected that the bank’s trading revenue would experience a low single-digit percentage increase in the third quarter, while investment banking revenue is expected to remain flat or see a slight rise.
