Citicorp, citing stiff competition in markets around the world, said Tuesday it would cut 7,500 positions, or 8% of its staff, and take an $889 million charge in a broad restructuring of operations.
The charge, taken in the third quarter, will be used to fund severance packages, consolidation of back-office operations, and upgrades in computer equipment.
The move by the nation's second-largest banking company underscores a long-running struggle by banks to boost profits in the face of slow revenue growth. Other companies may soon unveil bold cost-cutting moves of their own, analysts said.
Citicorp unveiled its restructuring while reporting third-quarter earnings, which were down 45% from a year earlier, to $511 million, reflecting the special charge. Operating income was $1.1 billion, or $2.19 per share-up 14% and ahead of analysts' consensus estimate by 5 cents.
Other major banking companies reporting earnings on Tuesday also met or beat analysts' expectations. (See story on page 4.)
Citicorp chairman John S. Reed said the operations overhaul was necessary in light of declining profit margins and intensifying price pressures in "virtually all markets."
"We are responding to these conditions, which are not going away, by pursuing aggressive and focused business strategies in all markets, by giving central attention to quality, and by realigning our business and processing structures to give them a global configuration," Mr. Reed said.
Wall Street analysts have been expecting a program like this for months, following hints by Mr. Reed in public statements early in the year. In the end, the scope of the program was about what analysts had expected.
Citicorp's shares rose with the general market-up $5.312, to close at $144.187.
Analysts said the overhaul was a sign that Mr. Reed was serious about boosting efficiency at the $300.4 billion-asset company. Citicorp currently has an efficiency ratio of 56.5%, six and half basis points higher than what most analysts consider ideal.
The job eliminations will be worldwide, concentrated in the bank's operations and technology group, said a spokesman. A total of 9,000 jobs are slated to be cut, but 1,500 of those employees will ultimately be retrained and rehired to new positions in the group, the spokesman said.
Almost two-thirds of the charge-$580 million-will be absorbed by Citicorp's huge global consumer banking unit. "That's where a lot of the fat is," said David Berry, director of research at Keefe, Bruyette & Woods.
He estimated that the total restructuring, which is slated to last 12 to 18 months, will result in annual costs savings of $750 million.
The program is "really a continuation of a trend that's gone on for some time in the industry," said Raphael Soifer, an analyst at Brown Brothers Harriman & Co. "There is a continuing stress on efficiency given that revenues have been sluggish."
Just last week, top executives at BankBoston Corp. outlined their own restructuring plans in a memorandum to employees. The Oct. 17 memo, which did not give a price tag, said the program would "focus on process- intensive businesses in the U.S." and would involve an unspecified number of layoffs.
Restructuring is not new to Citicorp. It took a series of charges in the early 1990s: $300 million in 1990, $750 million in 1991, $227 million in 1992, and $425 million in 1993.
Analysts said those charges were "blunt instrument cost cutting" by comparison.
"This is the culmination of Mr. Reed's thinking on this," said Diane B. Glossman, an analyst at Salomon Brothers. "He is saying you can't efficiently do everything everywhere, and now, with technology and telecommunications, you don't have to."
While Citicorp has taken charges incrementally for systems consolidation over the last two years, this charge will "accelerate that process in a very meaningful way," Ms. Glossman said.
But Citicorp will have to manage a delicate balance between cost cutting on the back-end and quality control on the front-end, consultants said.
"There are countervailing forces," said James Bramlett, vice president at First Manhattan Consulting Group. "If anything, it indicates a seriousness of intent and creates an environment in which you can take more drastic steps."
For the quarter, Citicorp's total revenues grew 11%, to $5.9 billion. Citicorp said the increase was fueled by the results of consumer branch banking and global corporate banking, including a strong performance in foreign exchange. Credit card results kept revenues from jumping still higher, the bank said. +++
Citicorp New York Dollar amounts in millions (except per share) Third Quarter 3Q97 3Q96 Net income $511.0 $935.0 Per share 1.01 1.85 ROA 0.68% 1.39% ROE NA 18.60% Net interest margin 4.88% 5.12% Net interest income 3,453.0 3,330.0 Noninterest income 2,665.0 2,301.0 Noninterest expense 4,237.0 3,078.0 Loss provision 486.0 449.0 Net chargeoffs 461.0 399.0 Year to Date 1997 1996 Net income $2,530.0 $2,801.0 Per share 5.12 5.45 ROA 1.16% 1.40% ROE NA 18.90% Net interest margin NA NA Net interest income 10,356.0 9,944.0 Noninterest income 7,505.0 6,709.0 Noninterest expense 10,579.0 8,916.0 Loss provision 1,421.0 1,422.0 Net chargeoffs 1,346.0 1,272.0 Balance Sheet 9/30/97 9/30/96 Assets $300,381.0 $271,930.0 Deposits 194,098.0 179,319.0 Loans 180,995.0 169,127.0 Reserve/nonp. loans 202.0% 146.4% Nonperf. loans/loans 1.60% 2.20% Nonperf. assets/assets 1.20% 1.80% Nonperf. assets/loans + OREO 2.10% 2.90% Leverage cap. ratio NA NA Tier 1 cap. ratio 8.20%* 8.40% Tier 1+2 cap. ratio 12.10%* 12.40% *Estimated ===
