In late March, Covid-19 hit the United States hard. A record-setting 3.28 million people filed for unemployment benefits for the week ending March 21. At the time, it was the highest level of claims in reported history. The huge number of people filing for benefits was above the numbers reported during the financial crisis.
Due to the drastic health, economic and job-loss crisis, prominent CEOs—many from financial services and Wall Street—promised that they would not lay off workers in 2020. Citigroup CEO Mike Corbat reassured the job security of his more than 200,000 workers. He pledged that the bank would temporarily suspend any layoffs. In another act of kindness, Citigroup reported that it’s giving out $1,000 bonuses to some employees and won’t count the days taken off from work during the coronavirus outbreak.
It was reported this week that Citigroup will resume job cuts, in an effort to keep costs under control. Corbat announced his retirement last week and Jane Fraser, a 16-year veteran of the bank, was named as the new CEO of Citigroup. It now seems that Corbat will be leaving behind some tough issues for his replacement, the first female CEO of a major Wall Street bank.
The layoffs are needed to “offset significant investment in Citi’s operational controls, which regulators including have long viewed as deficient and are likely to be publicly admonished in the coming weeks,” reported the Financial Times. The publication also pointed out that the large bank will be required by the Office of the Comptroller of the Currency and the Federal Reserve to invest “heavily in its risks and control systems to assuage concerns from U.S. regulators preparing to publicly sanction the bank for its failings.”
One example of poor risk management was an instance in which “the bank mistakenly made a $900 million payment to creditors of Revlon—the type of mistake regulators reportedly believe could have been avoided with better systems in place,” reported Barron’s. Citi has sued a number of lenders to recover the money. Top ratings agency S&P wrote that “Corbat was directly involved in the feud” and made “phone calls to fund managers to ask for the money back.” A spokesperson for the bank said, “Citi has several remediation projects underway to strengthen our controls, infrastructure and governance.”
In addition to regulatory pressures, Citi has other concerns. The big bank may need to contend with a low interest rate environment for the foreseeable future, which is not positive for banks. Also, there is a very real possibility that revenue and profits may drop as its customers have lost their jobs or have had working hours reduced due to the economic effects of Covid-19 and are rendered unable to pay off their loans, mortgages and credit card bills.
Citigroup is massive and its headcount is roughly 204,000 people. The anticipated job losses will impact under 1% of its global employees. A cursory search of Citi’s online job postings shows that around two-thirds of the listings are outside of the U.S. This reflects an ongoing trend of Wall Street banks relocating jobs to lower-cost cities within America and to other countries. Bloomberg reported, “The bank said it has hired more than 26,000 people this year, and over one-third of those jobs were in the U.S.,” which means that two-thirds were outside of America. “The bank will offset investments in better governance with plans to reduce its real estate footprint and by moving some employees to less-expensive cities and offices.
A statement issued from the bank on Monday read, “The decision to eliminate even a single colleague role is very difficult, especially during these challenging times. We will do our best to support each person, including offering the ability to apply for open roles in other parts of the firm and providing severance packages.”
In a year where many stocks have since recovered from their late-March lows, Citi’s stock price plummeted from nearly $80 per share in January to a low of about $48.15 at Tuesday’s market close.