Citigroup, the U.S. banking giant, plans to reduce its workforce by 20,000 over the next two years due to a "clearly disappointing" quarter marked by one-off charges, leading to a $1.8 billion loss.

The bank's shares, currently undergoing a multi-year initiative to reduce bureaucracy and enhance profitability, have risen by over 1%. CEO Jane Fraser described the fourth quarter as clearly disappointing and emphasized the critical nature they will face in 2024.

Comprehensive Reorganization

According to Chief Financial Officer Mark Mason, Citigroup plans to cut 20,000 jobs, equivalent to about 8% of its global workforce of 239,000, by 2026 as part of a comprehensive reorganization, with a plan to exclude 40,000 jobs from its count when it spins off and lists its Mexican consumer unit Banamex in a future initial public offering, to achieve a staffing level of 180,000 employees ultimately. However, excluding the one-off charges, analysts noted that the results from the third-largest U.S. lender by assets seemed strong.

Resilience Despite Significant Losses

"Citigroup reported a significant loss of $1.8 billion, but the core business displayed resilience," stated Octavio Marenzi, CEO of the consulting firm Opimas. The $3.8 billion in charges was driven by reorganization costs, a reserve for currency devaluations and instability in Argentina and Russia, and a $1.7 billion payment to top off a government deposit insurance fund, as revealed in a filing on Wednesday.

The bank anticipates reporting charges ranging from $700 million to $1 billion this year, associated with severance costs and the ongoing reorganization. Mason informed reporters that morale tends to suffer when industries or companies undergo such reductions. However, he assured that the staffing cuts would not affect revenue growth.

The bank will unveil additional organizational changes in the week of January 22, as stated in a staff memo seen by Reuters. Fraser mentioned that efforts to streamline its structure will be mostly finished this quarter, resulting in savings of $1 billion and the removal of around 5,000 primarily managerial roles.

Competitors JPMorgan Chase and Bank of America announced reduced quarterly profits on Friday, whereas Wells Fargo exceeded expectations due to cost-cutting measures.

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Citi's Decline in Revenue

Citi's revenue declined by 3% to $17.4 billion in the quarter compared to the previous year, marking the first instance where the bank separated earnings for its five businesses services, markets, banking, U.S. personal banking, and wealth was previously consolidated under broader divisions.

Revenue from markets, or the trading division, declined by 19% to $3.4 billion compared to the previous year due to a 25% fall in fixed-income revenue from slow rates and currency markets, along with losses from Argentina. In contrast, banking revenue increased by 22% to $949 million, driven by higher investment banking fees for debt capital markets and advisory work that offset a decline in corporate lending.

In U.S. personal banking, revenue rose 12% to $4.9 billion, driven by retail banking and credit card growth. However, consumers begin displaying signs of financial strain, prompting Citi to increase its reserves to cover potential losses on deteriorating loans.

Chris Marinac, the research director at Janney Montgomery Scott, commented that the restructuring, disclosed two months ago, was long-anticipated. The question now revolves around their ability to successfully implement the restructuring and foster growth in the core business, with an undetermined outcome. 

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