More Layoffs from Citi

Citigroup Inc. ( C - Analyst Report ) is on course to slash 300 jobs in sales and trading operations worldwide, according to a report by The Wall Street Journal. This retrenchment of Citi comes as the company counters revenue slouch with expense cut initiatives.

Last year, Citi made a 5% cutback in its securities-and-banking division. This resulted in 900 layoffs. Notably, the economic slump has had a severe impact on the Securities sales-and-trading business across several large Wall Street firms. With investors growing wary of the European debt crisis as well as U.S. economic outlook, this business has witnessed reduced volumes and lower revenues.

The onset of the current layoffs was triggered prior to the departure of Mr. Pandit, the former Chief Executive Officer of Citi. Further, with its new CEO, Michael Corbat, Citi remains committed to continue with the efficiency improvement measures and the expense management efforts.

Our Take

In the midst of a challenging operating environment, lower returns and stringent capital norms, many Wall Street banks are trimming businesses to meet the aforementioned challenges. In addition to Citi, Bank of America Corp. ( BAC - Analyst Report ) is rightsizing its business and slashing jobs to address revenue slump. Further, a number of European counterparts such as UBS AG ( UBS - Analyst Report ) and Deutsche Bank AG ( DB - Snapshot Report ) have announced significant layoffs.

We believe that with a protracted economic recovery, bolstering revenue has become a challenge. Therefore, sustaining and elevating profitability through cost reduction measures including layoffs is what several banks are looking at. Therefore, until a recovery in revenue occurs, such actions are anticipated to continue to help strengthen profit levels and capital ratios.

Citi currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals, we also have a long-term Neutral recommendation on the stock.