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Citigroup hit by restructuring charge

Citigroup Inc, the biggest US bank, said first-quarter earnings fell 11 percent because of a charge to eliminate 5 percent of its workforce and bring costs in line with its competitors.

Net income declined for the third straight quarter, dropping to US$5.01 billion, or US$1.01 a share, from US$5.64 billion, or US$1.12, a year earlier, New York-based Citigroup said yesterday in a statement.

The results included US$1.38 billion to eliminate 17,000 jobs, shift workers to lower-cost locations and shut offices during the next three years.

Profits excluding the charge rose 4.3 percent to US$5.88 billion, or US$1.18 a share, beating the average estimate of US$1.09 a share from 16 analysts surveyed by Bloomberg. Excluding the charge, Citigroup said revenue grew faster than operating costs for the first time since the third quarter of 2005, bolstered by trading and investment banking.

lagging behind

Shares and earnings at Citigroup, led by chief executive officer Charles Prince, have lagged behind rivals, putting management's "back against the wall," said Michael Mayo, an analyst at Deutsche Bank AG, which held about US$2.4 billion of Citigroup stock at the end of last year.

"We believe Prince's job could be at risk if his plans fall short in 2007," he said.

Prince plans to reduce spending at the consumer-banking unit by US$650 million this year and lower investment banking expenses by US$400 million.

First-quarter revenue rose 15 percent to US$25.5 billion, compared with the 10 percent increase in expenses, the company said. Return on equity, a gauge of how effectively the company reinvests earnings, was 17.1 percent.

The company agreed on Friday to buy hedge-fund manager Old Lane LP and put co-founder Vikram Pandit in charge of private-equity, real estate and hedge-fund investments. The terms were not disclosed.

Shares of Citigroup have advanced at annual rate of 6.5 percent, including reinvested dividends, since the 57 year-old Prince succeeded Sanford Weill as CEO in October 2003, trailing the 10.1 percent advance of the 24-member KBW Bank Index. The firm's stock closed on Friday at US$51.60, down US$0.05.

reducing expenses

The plan to reduce expenses probably won't affect earnings this year because severance and other charges will balance the benefits, UBS Securities LLC analyst Glenn Schorr wrote in a report last week. By the end of next year, savings probably will boost earnings per share by 6 percent, Schorr said.

new branches

The bank opened 1,165 new branches last year, most of them commercial-finance offices. The company said expenses caused by the expansion pushed up its costs at twice the rate of sales growth.

That drew complaints from shareholders including Saudi Prince Alwaleed bin Talal. Prince promoted Robert Druskin in December to chief operating officer and told him to streamline computer systems and management groups, and move back offices to lower-cost areas of the US, Europe and Asia.
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