Citigroup Inc. is out to prove that it can eliminate up to $2 billion from its expense base without mass layoffs. In reaching for such bloodless cuts, the company joins a host of other bank and brokerage companies that have instituted austerity programs - many of them a good deal smaller in scope than Citi's - to prepare for a slowdown in revenues this year.
The nation's largest bank is reportedly clamping down on costs and deferring certain expenditures throughout its three major businesses - corporate and investment banking, global consumer, and asset management - in an effort to boost its stock valuation and retrench for the challenges of a weaker economy.
In addition to Citi, Mellon Financial Corp., First Union Corp., Charles Schwab & Co., and Deutsche Bank have slated similar belt-tightening efforts.
These companies are wringing out cost savings by paying closer attention to such things as travel and entertainment budgets, by deferring certain projects, and by imposing hiring freezes. Mellon initiated a companywide cost control effort last week, though it has not come up with a targeted expense reduction figure. First Union launched a program, Project Guarantee '01, late last year that aims to reduce expenses by $400 million, largely through restrictions on travel and other employee-generated expenses. It is also restructuring its retail bank to eliminate some management positions.
Some Wall Street firms have been trimming staff to account for the slowdown in investment banking business. Merrill Lynch & Co., for example, has slashed 6% of its research staff, analysts said. Goldman Sachs Group began laying people off late last fall as part of an annual review of underperforming employees, but insiders say the cuts this year are more aggressive than in the past. Goldman is also cracking down on perks like car services and has eliminated free fruit in the afternoon, employees said.
Still, for the most part, huge layoffs have not been part of the latest round of fiscal conservatism in the industry, analysts said, and many believe Citi can find the savings without resorting to firing people.
Most analysts cite Citi's huge revenue and expense base - $78 billion and $38 billion, respectively, last year - as the reason why the cuts won't be so obvious. Cutting $2 billion would amount to just over 5% of last year's total expenses.
"They are not going to grow some of the businesses the way they said they would," said David Berry, director of research at Keefe, Bruyette & Woods Inc., who said he talked to Citi officials on Tuesday. "They will be less aggressive with consumer lending, for example, and focus on costs. Every corporation in America, I would presume, is doing this. This is nothing unusual at all."
A spokeswoman for Citi declined to comment on the cuts, talk of which started circulating around Wall Street early last month. TheStreet.com reported in February that Citi was contemplating cost cuts of $1 billion to $2 billion, and, on Tuesday, the cuts were reported in The Wall Street Journal.
Richard Strauss, a Goldman Sachs Group analyst who follows Citi and many of its Wall Street rivals, said Citi would spend less on its consumer businesses, especially in areas like technology and marketing, but would continue to be aggressive in investing in the corporate business, especially in Europe.
Plus, expense management is one of the hallmarks of Citigroup chairman Sanford I. Weill's management style. "No one does expense management - in good times and bad- better than he has," Mr. Strauss said.
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