--Citi to cut costs by $900 million in 2013, $1.1 billion in 2014
--First substantial changes by new CEO Corbat, 1,700 job cuts on New York City
--CFO Gerspach: Business review and cost cuts to continue
(Updates with the closing price of Citi's stock, and details about layoffs in New York City.)
By Matthias Rieker
Citigroup Inc. (C) said Wednesday it will eliminate more than 11,000 jobs, or about 4% of its workforce, and take a related $1 billion fourth-quarter charge--the first step in an ongoing review that likely yield more cuts.
Citi shares jumped 6.3%, to $36.46 in afternoon trading, their biggest increase since Oct. 15, when Citi announced third-quarter results. With the price gains, Citi's market capitalization increase about $7 billion Wednesday to $107 billion.
The moves are expected to save $900 million next year and $1.1 billion annually beginning in 2014. They will slice less than $300 million off revenue, Citi said.
The sweeping changes are Chief Executive Michael Corbat's first stamp on the bank since taking over from Vikram Pandit in mid-October. Chief Financial Officer John Gerspach told investors that the cuts are "a fairly comprehensive initial foray" and "part of a continuum" of business reviews and cost cuts by Mr. Corbat's management team.
"What you can expect is a continuing examination of every one of our businesses," Mr. Gerspach said during a Goldman Sachs financial services conference after the cuts were announced Wednesday. "We will constantly seek new areas to improve efficiency."
Mr. Gerspach said Citi aims to eventually generate a return on tangible common equity of 10%. It was 8.7% so far this year.
The bank has been under increasing pressure to cut costs to lift returns, and Mr. Corbat has said his top priority is to make Citi a leaner and more-efficient bank.
On the day of his surprise appointment in mid-October, Mr. Corbat wrote in a memorandum to Citi employees that he would make changes after taking time to review the company and its structure.
"These actions are logical next steps in Citi's transformation," Mr. Corbat said in a press release.
Wells Fargo Securities analyst Matthew Burnell said he was pleased with the cuts--and surprised by the magnitude of the action. RBC Capital Markets analyst Gerard Cassidy said he believes the cuts are "just the beginning."
Mr. Cassidy said he sees Chairman Michael O'Neill's fingerprints on Wednesday's action. Mr. O'Neill became chairman of Citi earlier this year and was a driving force behind Mr. Pandit's resignation, according to The Wall Street Journal.
"We believe O'Neill is a serious cost-cutter with a relentless focus on reaching above-average returns for shareholders," Mr. Cassidy wrote in a research report. "Today's announcement shows that there's a new sheriff in town, and nothing is sacred."
While Citi has come a long way since its near collapse in late 2008, when it was forced to take a $45 billion federal bailout, the bank's cost of doing business had repeatedly disappointed analysts. Despite the cuts, Mr. Corbat reiterated that Citi's overall strategy of focusing on consumer and capital-markets banking around the world wouldn't change.
Citi reported a $6.3 billion profit for the first three quarters this year, down 37% from the same period a year earlier. Expenses totaled $36.7 billion, down 3%.
Before Citi announced its expense cuts, analysts had expected the bank to report earnings of $1.04 a share in the fourth quarter, compared with $1.23 a share a year earlier, according to Thomson Reuters. Analysts expected Citi to report earnings of $4.19 this year and $4.64 in 2013.
Consumer banking, which has been the bright spot in Citi's revenue growth of late, will be hit hardest by the cuts, with about 35% of the charges and the majority of the layoffs in branch banking and consumer lending. The bank will scale back or exit consumer banking in Pakistan, Paraguay, Romania, Turkey and Uruguay. Citi has 49 branches in those markets.
Even Citi's top markets aren't spared. The bank will cut its number of branches in Brazil and Hong Kong. Citi will also close branches in Hungary, South Korea and the U.S.
Citi had 4,069 branches Sept. 30, according to a regulatory filing. It said Wednesday it will keep investing in its urban markets across the world, including opening branches. Citi aims to keep more than 4,000 retail banking branches, about 1,000 of which are in the U.S.
Operations in Mexico and Poland, where Citi has dominant positions in retail banking, won't be impacted, according to a person familiar with the matter. Mexico in particular has long been a pillar of Citi's foreign consumer-banking strategy.
In the capital-markets and transaction-processing units, a combined 1,900 jobs will be cut. Citi said 35% of the $1 billion charge is related to those two businesses.
Citi said the measures are being taken to improve productivity, particularly in its cash equities business. That business has been hit hard by slower trading volumes over the last two years, and Citi has, at times, struggled more than its competitors to reshape those operations profitably.
Citi said it would cut another 2,600 staffers in back-office operations such as technology.
About 1,700 of the job cuts will be in New York City, where the bank has its headquarters and three other towers with consumer banking operations, trading floors, and back office staff.
Mr. Corbat had spent a significant part of his recent career at Citi shrinking the bank, particularly its consumer-lending businesses, and dumping derivatives tied to mortgages.
Prior to the promotion, Mr. Corbat ran Citi Holdings, an operating unit the bank formed to house businesses slated for disposal. Most recently, he ran Citi's operations in Europe, the Middle East and Africa.
When Mr. Pandit became CEO of Citi in December 2007, he promised "an objective and dispassionate review of all the businesses, individually and in aggregate." Citi had a staff of 375,000 and $2.2 trillion in assets.
It took a year for Citi to announce a major restructuring that included the sale or wind-down of several consumer operations in Europe, including the U.K.; the sale of Citi's retail-brokerage operation Smith Barney into a joint venture with Morgan Stanley (MS); and the sale of unwanted loans and derivatives.
All said, Citi sold more than 60 businesses and reduced assets in Citi Holdings by more than $600 billion since the financial crisis began--predominantly under Mr. Corbat's tenure as CEO of Citi Holdings.
On Sept. 30, Citi had a staff of 261,000 and total assets of $1.9 trillion. It took Mr. Corbat all of seven weeks to announce the next round of restructuring.
--Suzanne Kapner and Brett Philbin contributed to this article.
Write to Matthias Rieker at email@example.com