KEY POINTS:
Citigroup, the largest financial institution in the US, is planning to lay off more than 20,000 staff in the first major downsizing caused by the credit crisis.
In a move that will be closely watched by other Wall St banks, Citigroup's new chief executive, Vikram Pandit, was expected
to outline at least some of his cost-cutting measures overnight, alongside billions of dollars of new losses on the mortgage markets.
Some reports yesterday suggested the total staff reduction could reach 30,000 over the course of the next year. While many Wall St banks have been scaling back their mortgages and related derivatives-trading operations, the Citigroup plan is the first to promise deep cuts across a whole banking group, which also includes one of the biggest retail banks in the US.
Citigroup employs more than 300,000 people worldwide. Industry observers have predicted a wave of job losses across Wall St as the long-term effects of the crisis become clearer.
Pandit has been racing to put together a rescue plan for Citigroup since being promoted to chief executive in December, a month after the resignation of Chuck Prince, whose leadership had been dogged by criticism that he let costs get out of control.
Mounting losses on mortgage investments were the final straw for Prince, and Citigroup said at the time of his departure that 2007's financial results would be scarred by an estimated US$11 billion ($14 billion) of write-downs.
Analysts now believe that figure is even higher, perhaps more than twice as much, and are braced for bad news.
Pandit has also been trying to finalise a recapitalisation plan that will repair Citigroup's damaged balance sheet, replacing at least some of its mortgage losses with new capital from wealthy investors and so-called sovereign wealth funds, the investment arms of emerging market Governments.
The company tapped the Government of Abu Dhabi for US$7.5 billion in the northern autumn.
But rumours circulating on Wall St suggested last-minute glitches, and that the Chinese Government had turned down a request to provide US$2 billion for the rescue package.
It remained uncertain last night whether Citigroup will manage to reach the full US$14 billion cash infusion that it has been hoping for.
Any shortfall would put additional pressure on the company to slash costs, analysts said. Job cuts could be concentrated in areas that have historically underperformed, and Jeff Harte, analyst at Sandler O'Neill, told clients Citigroup could scale back its least lucrative lending activities over the coming years.
"Cutting the dividend and raising additional outside capital is likely, in our opinion. However, raising capital alone would not solve an underlying problem of under-productive assets.
"The firm's strained capital levels can be improved through a combination of boosting capital levels and purging unproductive assets."
Even before the credit crisis emerged to undermine Citigroup's fixed-income business, Prince had been struggling to control costs. Last April he cut 17,000 from a global workforce that then numbered 327,000, and promised to relocate 9000 more jobs to lower-cost regions.
That restructuring plan quickly became inadequate as Citigroup plunged into the red.
It is likely to report its largest quarterly loss on record in the final three months of the year, with a wide range of analysts' forecasts averaging at US$5 billion.
Because Americans have begun defaulting on their mortgages in record numbers, and because foreclosures are forecast to spike even higher this year, the value of a whole network of mortgage-backed derivatives has collapsed.
Demand for such products, the creation and trading of which netted billions of dollars in profits for Wall St firms during the credit market boom, has dried up since the last northern summer.
- Independent