Citigroup has a steep hill to climb\u2014something it knows all too well. <\/p>\n
Expenses are too high, the staff is bloated, profit margins are too low, and the stock has flatlined, especially compared to CEO Jane Fraser has her work cut out for her, and she\u2019s chipping away at turning around the big bank. <\/p>\n Right now, one of her bigger projects is simplifying Citi\u2019s organization structure by stripping out management layers\u2014and consequently streamlining decision-making. <\/p>\n When all is said and done, up to 10% of Citi\u2019s 240,000 employees could get pink slips, CNBC reported Monday, citing people familiar with the matter. The bank didn\u2019t confirm any layoffs. The bank told Barron\u2019s that it would provide more information in January when it delivers its quarterly earnings report.<\/p>\n When Fraser laid out her restructuring plans in September, she made no bones about the fallout.<\/p>\n \u201cWe have taken hard, consequential, tough decisions here. They aren\u2019t going to be universally popular within our bank. It\u2019s going to make some of our people very uncomfortable,\u201d said Fraser, at a conference where she discussed flattening the org chart. \u201cI am absolutely fine with that.\u201d<\/p>\n Fraser has been in overhaul mode almost from the day she took over the top job at America\u2019s third largest bank in March 2021. <\/p>\n The bank\u2019s first female chief executive has wound down Citi\u2019s retail banking operations in more than a dozen markets across Europe, Middle East, Africa, and Asia. In October, the bank sold its consumer wealth portfolio in China\u2014$3.6 billion in assets under management and bank deposits\u2014to In the U.S., the four biggest banks, by total assets: By net income, though, Citi brings up the rear\u2014-$13.4 billion over the past four quarters. The sum was a quarter of JPMorgan\u2019s and less than half of Bank of America\u2019s. Even smaller Wells Fargo brought in more money.\u00a0\u00a0\u00a0<\/p>\n The reason for the poor showing: Citi is particularly inefficient at controlling its noninterest operating expenses. <\/p>\n Over the past four quarters, Citi\u2019s overhead expenses made up 68% of its total revenue, substantially higher than Wells Fargo and JPMorgan\u2014and above Bank of America\u2019s 64%, according to FactSet.<\/p>\n Return on equity, which indicates how effective a company is in converting its investments into net income, was 6.2% at Citi, again significantly lower than its three rivals. \u00a0<\/p>\n At its 2022 inventory day, Citi laid out its targets to boost its return on tangible equity to at least 11% in the next few years and cut the efficiency ratio to below 60%. But the financial impact of its reorganizations won\u2019t be reflected in results until this year\u2019s fourth quarter, which ends on Dec. 31,<\/strong> the bank has said.\u00a0\u00a0<\/p>\n With 240,000 employees around the globe, Citi is second only in workforce size to JPMorgan. Jamie Dimon\u2019s operation has 29% more employees, but also 65% more assets and 53% more revenue.<\/p>\n Citi made $56,000 in profit per employee over the past four quarters, compared with JPMorgan\u2019s $165,000, Bank of America\u2019s $143,200, and Wells Fargo\u2019s $81,600.<\/p>\n Fraser has made clear she is up for cutting redundancies.<\/p>\n So far, Wall Street is upbeat about a trimmed-down Citi. In September, Wells Fargo analyst Mike Mayo wrote that the reorganization should \u201chelp reduce the fiefdoms that have plagued the firm in lieu of greater coordination.\u201d He expects the stock to reach $55 in the next 12 months, about 31% up from its current level. The average per-share price target of analysts polled by FactSet is $50.\u00a0<\/p>\n Investors, on the other hand, have been more cautious. Citigroup\u2019s struggles started more than two decades ago, but took a turn for the worse during the subprime mortgage crisis of 2007 and 2008, when the bank had to write off billions of dollars in bad loans and accept a government bailout to stay afloat. The stock fell sharply as many banks did, but Citi shares never bounced back.\u00a0<\/p>\n Missed financial targets and regulatory scrutiny for weak risk management under Fraser\u2019s predecessor, former CEO Michael Corbat, didn\u2019t help. Under Fraser, the stock is down another 40%. Today, it trades more than 90% below pre-2007 levels.<\/p>\n
\n Citi
\n \u2018s main three competitors, numbers compiled by Barron\u2019s <\/em>show.<\/p>\n
\n HSBC,<\/span>
\n Europe\u2019s largest bank by total assets, which stood at nearly $3 trillion at the end of last year. <\/p>\n
\n JPMorgan,<\/span>
\n $3.9 trillion;
\n Bank of America,<\/span>
\n $3.2 trillion; Citi, $2.4 trillion; and
\n Wells Fargo,<\/span>
\n $1.9 trillion. <\/p>\n