Citigroup is considering major job cuts at its Bora Bora project

When Citigroup CEO Jane Fraser announced in September that a sweeping overhaul of the company would lead to an undisclosed number of layoffs, a jolt of fear ran through many of the bank’s 240,000 employees. .

“We will be saying goodbye to some very talented and hardworking colleagues,” she warned in a note.

Employees’ concerns are justified. Managers and consultants working to reorganize Fraser — known internally by its code name “Project Bora Bora” — have discussed job cuts of at least 10% at several major companies, according to people familiar with the process. Talks are early and numbers may change in the coming weeks.

Fraser is under increasing pressure to reform Citigroup, a global bank so difficult to run that its challenges have consumed three predecessors dating back to 2007. Every scale What matters to investors is that the bank has fallen further behind its rivals since Fraser took over in early 2021. It trades at a price-to-tangible-book ratio of 0.49, less than half the average of its US peers and a third of the bank’s valuation. Top performers including JPMorgan Chase.

“The only thing it can do at this point is to reduce staff numbers significantly.” James Shanahananalyst Edward Jones said in an interview. “It needs to do something big, and I think there’s a good chance it will be bigger and more painful for City employees than they expect.”

If Fraser decides to lay off 10% or more of its workforce, it would be one of the deepest rounds of firings on Wall Street in years.

Because of regulatory demands precipitated by the retirement of her predecessor, Mike Corbat, Citigroup’s expenses and headcount ballooned under Fraser. While competitors have cut jobs this year, Citigroup’s staff levels have remained at 240,000 employees. That leaves Citigroup with the largest workforce of any U.S. bank except the largest and most profitable, JPMorgan.

Fraser’s plan and its financial impact will be updated in January along with fourth-quarter earnings.

The risks are high for America’s third-largest bank by assets. That’s because, after decades of underperforming stocks, missed goals and changing goalposts, Fraser is taking the steps that analysts have long called for. Failure could mean renewed calls to unlock value through more radical action such as breaking up the company.

Fraser pledged to boost Citigroup’s returns to at least 11% in the next few years, a critical goal that would help the bank’s shares recover. To get close to that, Citigroup needs to increase revenues, use its balance sheet more efficiently and cut costs. But revenue growth may be difficult to achieve as the U.S. economy slows, leaving expense cuts the biggest lever to pull, according to analysts.

“No investor I’ve talked to believes they’ll hit that return target in 25 or 26,” analyst Mike Mayo of Wells Fargo said in an interview. “If they cannot achieve returns above their cost of capital, which is typically around 10%, they have no right to stay in business.”

Freezer mode Titi Cole, head of Citigroup’s legacy franchises, is responsible for the reorganization, according to the sources. Cole joined Citigroup in 2020 and is a veteran of Wells Fargo and Bank of America, institutions that have struggled with expenses and headcount in the past.

Boston Consulting Group also plays a key role. The consultants participated in drawing up the bank’s organizational charts, tracking key performance metrics and making recommendations.

Although the project’s codename evokes the turquoise waters of Tahiti, staff have been anything but quiet since Fraser’s September announcement.

“Morale is very low, very low,” said one banker who recently left Citigroup and was contacted by former colleagues. “They say: ‘I don’t know if I’m getting beaten up, or if it’s my boss getting beaten up.’ People are preparing for the worst.”

The final number of layoffs will be determined in the coming weeks as the massive project moves from the layers of management to rank-and-file workers. But some things have already become clear, according to people who declined to reveal their identity while talking about the secret project.

They said executives will see cuts exceeding 10% as Fraser seeks to eliminate regional directors, co-presidents and others with overlapping responsibilities.

For example, chiefs of staff and senior management at Citigroup will be trimmed this month, one of the people familiar with the situation said.

Operations employees who supported companies that were divested or reorganized are also more at risk of layoffs, the people said.

He said that even if Fraser announced a significant reduction in workers, investors would likely need to see expenses fall before they could be convinced. Pierre Buhler, Banking consultant with SSA & Co. This is due to the industry’s record of announcing expense plans only to see costs increase.

However, it will be up to Fraser and her MPs to sign off on the comprehensive plan, and they may choose to downplay the cost savings. The project is primarily about removing unnecessary layers to help Citigroup serve customers better, according to a current executive.

Publicly, the bank has only said that costs will begin to decline in the second half of 2024.

Citigroup declined to comment beyond this statement:

A spokeswoman for the bank said: “As we have said previously, we are committed to delivering the full potential of the bank and delivering on our commitments to our stakeholders.” “We recognize that the actions we are taking to reorganize the company involve some difficult and consequential decisions, but they are the right steps to align our structure with our strategy and deliver on the plan we shared at our 2022 Investor Day.”