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Citigroup to Cut Jobs, Sell Assets in Financial Crunch

November 17, 2008 at 6:00 PM EST
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Citigroup announced plans Monday to cut 53,000 jobs worldwide as a result of the worsening global fiscal crisis and large company losses. Roben Farzad of Business Week assesses the financial institution's troubles and how other banks are faring.
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GWEN IFILL: We begin with the continuing fallout of the financial crisis and economic downturn here and abroad. Jeffrey Brown has our two-part look at the latest developments.

JEFFREY BROWN: And we start on the domestic front with today’s announcement of a giant job cutback by Citigroup, the latest round of layoffs to hit the financial industry.

With us to discuss the news is Roben Farzad, senior writer and columnist for BusinessWeek magazine.

Well, Roben, we’re all well aware that the financial sector is troubled, but remind us of the specific case of Citigroup. What led to cutting 53,000 jobs?

ROBEN FARZAD, Editor, BusinessWeek: Well, to take a term from the McKenzie vernacular, Citigroup is really trying desperately to right-side its business, this being one of the most complicated financial institutions in the world in perhaps the most complicated operating environment for Wall Street since the Great Depression.

So you layer one layer above another layer of complexity, and they are racing to figure out, what’s the right kind of workforce for a diminished revenue opportunity in this brave new world?

JEFFREY BROWN: Are its troubles different from other large banks and investment banks or more of the same that we’ve been talking about for the last few months?

ROBEN FARZAD: Some same and some different. Some are certainly peculiar to Citi. You recall that Citigroup was formed through the gigantic merger of Citibank and Travelers Group in 1998. That was Sandy Weill’s masterstroke.

Really, the verdict’s out. That acquisition never worked. And certainly the stock has round-tripped back to below where it stood 10 years ago when that merger was consummated.

And the bank has had an enormously difficult time integrating all the disparate software systems and back office systems and all these other things, kind of the mundane blocking and tackling of these mega-mergers that it partook in for the past 10 years. But then you get this unprecedented financial crisis and the tens of billions of dollars of subprime securities that it binged on with borrowed money turn out to be valued at a fraction of what Citi imagined.

Citigroup's 'drastic restructuring'

ROBEN FARZAD: So suddenly it has this conflagration on its balance sheet, and it's trying to figure out, how many people do we need for a company that -- the market a little more than a year ago valued Citigroup at over $200 billion. It's now at $50 billion. And they had 375,000 workers a year ago. Now they're targeting maybe for 300,000.

JEFFREY BROWN: And all these jobs that they're talking about losing, do we know what kind of job and how fast they're going to do it?

ROBEN FARZAD: They're across the board. Some are going to be done through asset divestitures. I guess they're hoping that they can spin off some of these businesses.

There's an Indian business operating unit that kind of does outsourcing for other financial firms. There's their German retail operation. They're hoping that there's a buyer out there. Certainly, it's not a seller's market right now, but that these businesses could be bought and the jobs preserved.

But, regardless, they'd be off Citi's books. And the others would be done through out-and-out firings, and that's going to be done across the board.

Citi is a commingling of various different businesses from the retail banks to Salomon Smith Barney to a credit card business to businesses in Latin America and Asia. So I imagine they're going to be across the board.

JEFFREY BROWN: Now, the CEO who made the announcement, Vikram Pandit, he just came in last year. Tell us a little bit about him and what he's been trying to do there.

ROBEN FARZAD: Vikram Pandit is a professorial type. He was a veteran at Morgan Stanley, and he went off to start his firm, Old Lane Capital. He was a hedge fund manager.

Citigroup bought that hedge fund, ultimately said, "Wow, we have a gem of a human resource talent here. Why don't we get this guy to be our CEO when Chuck Prince was sacked?"

He has been criticized, though, for co-opting a lot of the Chuck Prince and Sandy Weill "let's stick with it" policies when the firm really needed drastic restructuring.

And he's come out repeatedly since he joined last December and said, "Well, for example, we need to shed $500 billion in assets. We need to shed tens of thousands of workers."

And it seems like the bar keeps getting lifted by a market that's deteriorating. And he's been criticized throughout for not being tough enough, for being more of a visionary in an environment that really requires somebody to put on those work boots and wade through the muck and wield a machete, as mercenary as that sounds.

Need for bailout, foregoing bonuses

JEFFREY BROWN: What about the government rescue plan at this point? What are they saying about any impact that it may have had at this point or looking into the future?

ROBEN FARZAD: Well, since the government rescue was announced, it's really cold comfort for Citi. The stock has gotten pummeled. It's fallen below $10 in the past few weeks, levels that it hadn't seen since 1996.

The perception on the street is that Citi is really counting on a government bailout much more so than JPMorgan Chase and Wells Fargo and Bank of America, its most analogous peer group.

And we saw that when it made this abortive effort to buy Wachovia, when Wachovia was about to fail. It needed financial aid from the Treasury to make it happen. And so it couldn't offer a premium for Wachovia.

And what happened is Wells Fargo, which had managed its books in a more prudent fashion, stepped in and offers several times what Citi was able to offer. And so Citi is really the wallflower. It gets stuck when everybody is desperately trying to merge and acquire their way out of this morass.

JEFFREY BROWN: And I want to ask you briefly, before we go here, it always gets a lot of attention when the subject of bonuses and compensation comes up. I noted that they were asked about it and they said they would be looking at compensation going forward.

And we had Goldman Sachs say that some of their top executives were going to forego bonuses in the coming year, I guess. So this is in the air, I suppose, right?

ROBEN FARZAD: Well, Jeffrey, it's going to be an awfully tough case to make. When you're asking north of 50,000 people to leave the firm after they've endured a stock price that has fallen maybe 75 percent, which for a lot of Wall Street people constitutes the bulk of their compensation, it would be a P.R. fiasco, to say the least, without editorializing or anything.

Certainly they would be pilloried by shareholders activists and by shareholders who are frustrated at seeing their Citi investment really go nowhere.

But having said that, a lot of the people at these firms already really took their lumps in fairness in that the majority of them got majority stock compensation. And that stock, let's remember, has fallen from about $55 to $9. So much of this is already fait accompli.

JEFFREY BROWN: All right, Roben Farzad of BusinessWeek, thanks very much.

ROBEN FARZAD: Thank you, Jeff.