Citigroup Inc will fire more than 1,200 of the 60,000 employees in its investment and corporate banking units to help counter a revenue slump from merger advice, stock sales and securities trading, company executives said.
For the past month, top managers at Citigroup's Salomon Smith Barney division have been lengthening their lists of people to be dismissed on orders from Salomon Chairman Charles Prince to cut more expenses, they said. The expected cuts -- following dismissal of 3,600 bankers earlier this year -- helped boost the bank's shares 3 percent, or US$1.03, to US$35.70 in New York Stock Exchange composite trading.
"They've got too many bodies and not enough deals," said Anton Schutz, who manages US$60 million, including 25,000 Citigroup shares, at the Burnham Financial Services Fund. "Why should you have guys sitting around playing solitaire?"
The world's largest financial services company has already fired 8 percent of its bankers this year and cut 2,000 investment banking jobs last year, according to Citigroup executives. It is not alone. Since securities industry employment peaked 18 months ago, Wall Street firms have cut 61,000 jobs, according to the US Bureau of Labor Statistics.
Citigroup Chairman Sanford Weill, whose company shares have lost US$338 million of their value this year, has a following among investors for his cost-cutting prowess. Weill, 69, is battling allegations of influencing analysts to write favorable reports about investment banking clients and has agreed to answer questions from New York Attorney General Eliot Spitzer on the issue.
"They are cutting their costs in a way that they will improve their margins when volumes pick up," said Marshall Front, who manages US$1.8 billion at Front Barnett Associates LLC, which owns about US$50 million in Citigroup shares. "I'm also pleased that Sandy Weill is trying to get the conflicts of interest behind him."
The Citigroup cuts will include more than 200 investment bankers who are to be fired over the next few weeks, including several in the upper levels of seniority, according to the New York Times, which earlier reported dismissal plans. About 10 percent to 15 percent of specialists in mergers and corporate finance will be affected, the newspaper said.
Cuts in fixed-income groups were announced on Monday, executives said, and more notices are likely to be sent next Tuesday. Among those who have lost their jobs are Simon Wilkinson, a loan trader, and Leyla Malik, an arranger of corporate loans, Citigroup bankers said.
"We continue to look at areas that don't have a lot of activity and see whether it makes sense to manage down the staff," Citigroup Chief Financial Officer Todd Thomson told analysts on Oct. 15.
The corporate and investment banking divisions of Citigroup saw third-quarter profits fall 7 percent to US$1.2 billion from the year-earlier period and 20 percent from the 2000 third quarter.
Compensation and benefits costs for the divisions fell 9 percent to US$2.29 billion in the third quarter from the same quarter last year. The company's expense ratios in investment and corporate banking -- the amount of revenue spent on compensation -- fell to US$0.42 of every dollar in the quarter from 49 percent and 45 percent respectively in the first two quarters of the year.
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