The Globe and Mail reports that Citigroup may fire 5 percent of its workforce - about 17000 people. This is significantly less than earlier reports that warned of as many as 45000 jobs lost.
Citigroup is not exactly a money-losing business. Earnings per share have been steadily, if slowly, growing. The CEO Charles Prince is under pressure from Citigroup's largest shareholder, a Saudi prince, to match the performance of Bank of America and JPMorgan Chase & Co.
Citigroup plans to save about $2 billion per year after its restructuring, but it doesn't plan to rest on its laurels. The company just acquired Taiwan's Bank of Overseas Chinese for more than $400 million and is in talks to buy hedge fund Old Lane LP in order to expand their alternative-investments group. This profitable new area of business would include private equity and real estate.
Is this a sluggish, old money giant trying to slim its way to new economy success? Of course, but just because the strategy closely resembles a cliche doesn't mean it won't work. Citigroup can afford to pay a premium to hire the world's best management. The current leadership doesn't have a strong track record of recent success, but that actually makes immediate success easier to attain due to lower thresholds for growth rates.
Citigroup hasn't been a great investment for the last few years, and no matter how effective the restructuring turns out to be, the company probably won't lead the market higher in the next few years either. But Citigroup isn't going to even come close to losing money either. It can be difficult to leverage the stable, unsexy cash flows of the past into new revenue streams, but that's a whole lot easier than leveraging red ink into growth.
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