Citigroup has announced that it will lay off 17,000 workers as part of a massive restructuring expected to save the company more than US$10 billion (NZ$17 billion) over the next three years.
The company also announced an overhaul of its IT operations, including the consolidation of datacentres, better use of existing technologies, optimisation of global voice and data networks, standardisation of its application development processes and vendor consolidation.
“Simplification and standardisation of Citigroup’s information technology platform will be critical to increase efficiency and drive lower costs as well as decrease time to market,” the company said in a statement earlier this month.
Citigroup’s restructuring follows an expense review conducted over the past three months, Charles Prince, the company’s chairman and CEO, says in the statement. The goal is to identify and eliminate “organisational, technology and administrative costs that do not contribute to our ability to efficiently deliver products and services to our clients,” Prince says.
In addition to the job cuts announced, Citigroup says it will also move an additional 9,500 back-office and corporate positions to lower-cost locations, both domestically and offshore. That move will allow it to eliminate some of the duplications that exist in those functions at the business, regional and headquarters level, the company says.
Other expense-cutting measures include an increased use of shared services for legal, human resources, risk management and financial operations, and the sharing of some back-office functions in international markets. The company also plans to expand efforts to centralise all of its purchases. At the end of last year, Citigroup had centralised about 65% of its purchases — a proportion it hopes to grow to near 100% by the end of 2009.
Such measures should result in savings of about US$2.1 billion in 2007, US$3.7 billion in 2008, and US$4.6 billion in 2009.
Citigroup’s moves are “much needed”, says Guillermo Kopp, an analyst at the Tower Group in Boston.
What’s going to be crucial to watch over the next few months is whether Citigroup is making the job cuts in non-growth areas while retaining the staffing it needs to compete in high-growth areas such as global wealth management in the US and corporate banking in Europe. “There are some fantastic opportunities in some international locations”, and it’s important that Citigroup retains its ability to compete in them, Kopp says.
“If it’s cutting for the sake of cutting without any discrimination, the message is that Citigroup can’t downsize to greatness,” he says.
The same is true for technology, Kopp says. While there are opportunities to save money through datacentre consolidations, shared services and standardisation, it is crucial that Citigroup applies the savings to high-growth areas, he says. Technology investment in the global financial services industry is growing at the rate of 4.2% a year, he says.
Most of these investments are being made in innovative delivery channels such as the internet, electronic trading networks, mobile banking and increased branch automation, he says. Investments are also needed in building the technology infrastructure necessary to support those delivery channels, he says.