Citigroup (C.N) is set to embark on a significant restructuring initiative aimed at streamlining its operations, trimming layers of management, and facilitating a more direct oversight approach for CEO Jane Fraser. This strategic overhaul is part of the bank’s concerted efforts to enhance operational efficiency and bolster its stock performance.
Under this sweeping reorganisation, the heads of Citigroup’s five core divisions will report directly to CEO Fraser. Simultaneously, the bank will enact workforce reductions, although the precise scale of these cuts and their financial implications remain undisclosed.
In an address to investors in New York, Fraser acknowledged the gravity of the decisions undertaken, characterising them as “hard, consequential, tough.” She acknowledged that these measures might not find universal favour within the organisation, possibly causing discomfort among some employees. Nevertheless, Fraser firmly asserted that these actions are essential for the benefit of shareholders and aligned with the bank’s strategic direction.
Following Fraser’s remarks, Citigroup’s shares experienced a 1.7% surge. Chief Financial Officer Mark Mason subsequently affirmed that the bank would maintain its expense guidance for the year.
This comprehensive restructuring initiative represents another significant stride in Fraser’s overarching strategy to enhance profitability and simplify Citigroup’s operations since assuming the helm in 2021. Despite divestitures and efforts to rectify regulatory concerns, Citigroup’s stock performance has trailed behind its industry peers.
The bank continues to grapple with a regulatory consent order issued in 2020, mandating the rectification of several “longstanding deficiencies” in its internal controls.
Citigroup has unveiled a roster of new division heads as part of this organisational reshuffle, including Shahmir Khaliq for the services unit, Andrew Morton overseeing markets, Peter Babej, serving on an interim basis for investment and corporate banking, Gonzalo Luchetti in charge of U.S. consumer banking, and Andy Sieg set to head the wealth division upon his imminent arrival later this month.
Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, holding Citigroup shares, commented on the restructuring, highlighting the anticipated cost-saving benefits of creating a flatter organisational structure.
The bank is actively seeking external candidates to fill the role of the head of banking. Citigroup will consolidate its non-U.S. operations under the leadership of Ernesto Cantú, the newly appointed head of international. The restructuring has led to the elimination of management layers within what was previously known as the Institutional Clients Group, the bank’s largest division, as well as within Personal Banking and Wealth Management.
Fraser noted that these changes have led to the dissolution of 35 committees, citing them as examples of efforts to reduce bureaucratic complexities. Nevertheless, this reshuffling is expected to prompt departures, as outlined in a memo to employees. Fraser will engage in a town hall session in the coming week to address further questions and concerns.
The new division heads will wield decision-making authority over the second and third layers of management, with announcements regarding these positions expected in November and January, according to sources familiar with the matter.
In summarising the restructuring’s objectives, Fraser emphasised its role in enhancing organisational accountability.
Despite the uptick in share prices witnessed on the day of the announcement, Citigroup’s valuation still lags, remaining below half of its book value. In contrast, competitors like Wells Fargo (WFC.N) and Bank of America (BAC.N) boast valuations exceeding 0.8, while JPMorgan Chase (JPM.N) holds a valuation of 1.4.
Eric Compton, a banking analyst at Morningstar, emphasised that investors would scrutinise Citigroup based on concrete achievements aligning with its stated goals. He viewed the announced changes as relatively nuanced, with key personnel remaining in place.
Separately, CFO Mason offered insights into the bank’s financial performance, expecting trading revenue to experience a low single-digit percentage increase in the third quarter, while investment banking revenue is projected to remain flat or rise modestly.