More Layoffs at Citi, Bonus Cut

Citigroup Inc. ( C - Analyst Report ) is contemplating laying off 150 employees coupled with a 10% trim of bonuses in its trading and investment-banking division, according to a Bloomberg report. The move comes as Citi counters revenue slouch with expense cut initiatives.

Scheduled for this quarter, the layoffs would impact Citigroup’s businesses including equities trading and underwriting. Further, this year bonuses will be reduced at the company’s securities and banking division. However, leading performers might not encounter the cut.

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.

In Conclusion

Amidst a challenging operating environment, lower returns and stringent capital norms, many Wall Street banks are downsizing businesses to meet the aforementioned challenges. Apart from Citi, Bank of America Corp. ( BAC - Analyst Report ) , UBS AG ( UBS - Analyst Report ) and Deutsche Bank AG ( DB - Snapshot Report ) are rightsizing their business and slashing jobs to address revenue slump.

As such, in a tepid economic recovery, bolstering revenue has become a challenge. Therefore, sustaining and elevating profitability through cost reduction measures including layoffs and bonus cuts are what several banks are looking at. So, 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. Though cost cut initiatives are encouraging, we believe that change in estimates might occur only after the announcement of any major restructuring or for any substantial prospect of growth in revenue.