Citigroup’s CEO, Jane Fraser, has unveiled a sweeping reorganization plan aimed at simplifying the financial giant’s operations and boosting its stock performance. The overhaul includes substantial management changes and the potential for job cuts, reflecting Fraser’s efforts to improve the bank’s profitability.
As part of the restructuring, Citigroup plans to eliminate a layer of management. The heads of the bank’s five divisions will report directly to CEO Jane Fraser, streamlining decision-making and increasing her direct control over the organization.
Regional Leadership Changes
Citigroup will also reduce regional leadership roles outside of North America. While the exact number of job cuts remains uncertain, this move demonstrates the bank’s commitment to making significant changes to enhance its performance.
During an investor briefing in New York, CEO Jane Fraser acknowledged the tough decisions involved in the restructuring, emphasizing that they are essential for the benefit of shareholders. She anticipates that these changes may not be universally popular within the bank but believes they are the right course of action.
Positive Market Response
Following the announcement, Citigroup’s shares experienced a 1.7% increase. Chief Financial Officer Mark Mason’s confirmation that the company’s expense projections for the year would remain unchanged likely contributed to this positive market response.
Fraser’s Strategic Vision
This extensive restructuring aligns with Jane Fraser’s strategy to improve profitability and streamline Citigroup since she assumed leadership in 2021. Despite prior divestitures and efforts to address regulatory issues, Citigroup’s stock price has continued to lag behind its competitors.
Citigroup still grapples with a 2020 consent order from regulators that requires addressing several long-standing deficiencies in its internal controls.
New Division Heads
Citigroup has appointed key leaders for its divisions as part of the restructuring. Shahmir Khaliq will head the services unit, Andrew Morton will lead markets, and Peter Babej will oversee investment and corporate banking on an interim basis. Gonzalo Luchetti will be responsible for U.S. consumer banking, while Andy Sieg will head the wealth management division upon joining the company later this month.
Brian Mulberry, Client Portfolio Manager at Zacks Investment Management and a Citigroup shareholder, commended the restructuring efforts. He expects that the removal of unproductive management layers and the adoption of a flatter organizational structure will result in cost savings for the bank.
External Hiring and Consolidation
Citigroup is actively seeking external candidates for the banking head position and plans to consolidate its non-U.S. businesses under the leadership of Ernesto Cantú, the newly appointed head of international operations. The restructuring has already eliminated numerous management layers within the Institutional Clients Group and Personal Banking and Wealth Management, streamlining operations and reducing bureaucracy.
Jane Fraser acknowledged the potential for staff departures resulting from these changes and plans to address employee concerns in an upcoming town hall meeting.
The new division heads will be responsible for decisions regarding the second and third layers of management. These decisions are expected to be announced in November and January, according to anonymous sources familiar with the matter.
CEO Jane Fraser emphasized that the ultimate goal of these changes is to increase accountability within the organization.
Stock Valuation Challenges
Despite the recent stock price increase, Citigroup’s shares continue to be valued at less than half of their book value. In contrast, competitors such as Wells Fargo and Bank of America maintain higher valuations, while JPMorgan Chase leads with a valuation at 1.4.
Eric Compton, a banking analyst at Morningstar, noted that investors will reward Citigroup only when they see tangible results aligned with their goals. He viewed the announced changes as relatively nuanced, with key personnel from 2022 retaining their positions.
In a separate statement, CFO Mark Mason anticipated that Citigroup’s trading revenue would experience modest growth in the low single digits during the third quarter, while investment banking revenue was expected to remain stable or exhibit slight growth.