Along with details of a broad plan to cut billions in annual costs, Citigroup Inc. executives displayed Wednesday what many described as a tougher, more direct corporate voice.
"This is the beginning of a change in how we manage expenses in this company," chairman and chief executive Charles O. Prince said in a conference call. "You will see a more tightly managed and a more tough-minded Citigroup than you've seen in the past."
Robert Druskin, Citi's chief operating officer, said in an interview after the call that the message was meticulous by design.
"This kind of subject can get pretty arcane if you let it, and so we tried to do a couple of things at once," Mr. Druskin said. "One was to provide a philosophical framework for what we were doing; two was to provide enough detail so that the plan became a credible plan; and three was to give an idea that this was not really the end of the road but the beginning of a long-term and continuing process to do better in a number of areas."
Wednesday, after weeks of speculation, Citi spelled out its plan to cut its $52 billion expense base by $2.1 billion this year, $3.7 billion next year, and $4.6 billion in 2009. The total includes the $2 billion in technology cuts announced last October.
The first-year savings in Citi's global consumer group will be $650 million; the unit had operating expenses of $25.9 billion. In wealth management, it's $400 million on a 2006 expense budget of $8 billion.
About 17,000 employees are expected to lose their jobs as back-office operations are trimmed and procurement is centralized. Citi said 57% of the job cuts would be in its foreign markets and 43% in the United States. However, from a dollar perspective, about 55% of the savings is expected to come from U.S. operations.
"This broke from the lack of detail, the lack of articulation that they've become known for," Marshall B. Front, the chairman of the investment firm Front Barnett Associates LLC of Chicago, said in an interview Wednesday.
CIBC World Markets Corp. analyst Meredith Whitney noted "a decided change in the tone" sounded by Citi executives.
"We found management to be extremely direct, open to disclosure of greater detail, and no longer defensive," she wrote in a note sent to clients Wednesday. "Refreshing to us, management no longer threw off the vibe of 'C'mon, we're Citi, we don't have to tell you anything!' "
Jeffery Harte, an analyst with Sandler O'Neill & Partners LP, agreed.
"I think we heard everything we could've hoped to hear, realistically," he said in an interview Wednesday. "I think they said the things they had to say and I think that maybe is an indication that Chuck Prince and company are listening to what investors are saying."
Mr. Prince said a lot of large corporations, Citi included, cut expenses and jobs as a one-time event, but he wanted Wall Street to perceive this as a larger cultural shift for the $1.88 trillion-asset New York banking company.
"I think what we were trying to signal was that in the past we had typically managed expenses on an episodic basis," Mr. Prince said, where Citi would cut a number of positions and then return to business and usual. "We want to move from that episodic basis to much more of a … continuous process rather than 'Let's get this over with and go back to normal.' "
Mr. Prince promised Citi would achieve positive operating leverage this year, excluding the $1.6 billion of charges it would take related to reduce its head count and cancel real estate leases to cut its expense base.
Mr. Prince has been under pressure to reach that goal since early 2005 when he first vowed to increase revenue faster than expenses. That pressure peaked last summer when Citi's largest single shareholder, Saudi Arabia's Prince Alwaleed bin Talal, criticized the company. Mr. Prince appointed Mr. Druskin as chief operating officer in December and told him to conduct a three-month review of expenses. In February, after meeting with Mr. Prince, Prince Alwaleed said his "confidence in Citigroup is strong."
As for the substance of Citi's planned expense cuts, analysts and investment managers were split.
William B. Smith of Smith Asset Management Inc., a Citi shareholder, said he was unimpressed with both the company's conference call and its strategy to reduce expenses.
"Lots of noise, lots of fireworks, and no substance," said Mr. Smith, who has advocated in the past year that Citi be split up into separate businesses. "In order to actually affect the bottom line of this company — and if he wants to have this company continue to grow as a conglomerate — the number had to be 35,000 to 45,000."
Mr. Front, whose firm also owns shares of Citi, said he would wait to pass judgment on the company's cost-cutting plan until it is completed.
Guy Moszkowski of Merrill Lynch & Co. Inc. wrote that the cost cuts "exceed the market's expectations." He noted he did not expect Mr. Druskin's review to save more than the $2 billion Citi said it would save from reorganizing its information technology department.
Mr. Harte said: "It's still going to come down to their ability to execute. It seems as though investors will be skeptical until they prove top-line growth can be delivered while expenses are controlled."
Shares of Citi have hovered around the $50 mark since January 2004. Its stock nudged up 10% in late 2006 after Mr. Druskin was appointed COO, but it sagged back to the $50 range by March. It dropped as much as 2% Wednesday and closed down 1.2%, at $51.80.
On the conference call, Mr. Druskin said the plan to cut expenses would have a second phase, but he would not disclose what it would entail.
"What I don't want to do is get certain parts of the company on edge about what might happen next when we need them to execute what's on their plate now," Mr. Druskin said. "Just from a management perspective, I don't think that's a good idea to do."
