Dec 5 - Citigroup (Citi) announced it would take a $1 billion pretax
charge in fourth-quarter 2012 related to various repositioning actions,
including the reduction of more than 11,000 positions, or roughly 4% of the
company's total workforce. The approximately $1 billion charge is manageable, in
the context of core adjusted preprovision earnings (averaging around $7 billion
per quarter), and in line with the company's ongoing efforts to streamline
operations. There is no impact on the bank's credit profile or ratings.
Citi, like the industry, is facing various headwinds and scrutinizing expense
bases more carefully amid the challenging economic environment. The actions are
intended, according to Citi, to increase efficiency by reducing excess capacity
and expenses, with much of the staff reductions in the Operations and Technology
functions. Citi expects to sell or significantly scale bank consumer operations
in some markets, as well as close 84 of its approximately 4,000 branches, with
most of the closures happening in the U.S. Other actions include trying to
improve overall productivity in Citi's Markets business, especially in cash
equities, an area that continues to experience low profitability.
Citi estimates these actions will translate to approximately $1 billion in cost
savings in 2013 and 2014. In the context of a quarterly expense run rate of
around $12 billion, these projected savings represent just 2% of annual
expenses, only a modest benefit to overall profitability over the near term.
Fitch affirmed Citi's ratings in October 2012, reflecting Citi's fundamental
strengths and remaining challenges. Among its strengths are its diverse revenue
mix, conservative liquidity management, and improved capital position.
Challenges include a still sizeable level of nonperforming loans and noncore
assets, as well as modest levels of profitability. Fitch also factored in that
the pace of reduction in noncore assets will likely slow. Without significant
actions taken with regard to the disposition of remaining assets in Citi
Holdings, Fitch expects Citi's operating profitability to remain modest over the
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.