Mike Corbat is picking up the machete left behind by his predecessor. Less than two months after replacing an ousted Vikram Pandit in the corner office, Citi's new boss announced on Wednesday he's slashing 11,000 jobs. That won't endear him to staff. But it'll reap savings of at least $1.1-billion (U.S.) a year, a handy fillip for a firm consistently earning less than its cost of capital.
The strategy isn't new, though. Mr. Pandit had been wielding the knife since taking over at the end of 2007. As with previous trimmings, this round is also no panacea. The cuts represent just over 2 per cent of expected costs this year, after annualizing numbers for the first nine months of 2012. That's enough, after tax, to add around half a percentage point to the bank's return on common equity – still leaving Citi short of breaking even.
Mr. Corbat's first big move is hardly radical either. The bank is shuttering retail operations in several countries, including Turkey, Pakistan and Paraguay, and closing a few dozen branches in the United States. But Citi's general structure and scope remain the same, with the changes reducing annual revenue by just $300-million. Some of the paring is also thanks to a decline in bad loans and an increase in automation in businesses like trading. These would have prompted layoffs regardless of a special cost-cutting plan.
The importance of the steps is still evident for a new boss so early in his tenure. It shows shareholders a willingness to make tough decisions. And it surely also won't be lost on the Federal Reserve, which is about to consider plans from Citigroup and other large U.S. banks to return capital to investors.
So far, though, Mr. Corbat looks to be doing little more than tweaking Mr. Pandit's strategy. That's fine for now. With a very active chairman in Mike O'Neill – the man who evidently forced out Mr. Pandit – looking over his shoulder, Mr. Corbat will undoubtedly have considerably bigger moves to make.