Citigroup Trims Bonuses

Recently, Citigroup Inc. ( C - Analyst Report ) jumps on the bandwagon of slashing bonuses. The company reduced 10%–20% of incentives in its investment banking division globally. The bonus cuts come on the back of Citigroup’s disappointing fourth-quarter results. The company reported revenues of $70.2 billion for the year 2012, down 10% year over year (including credit valuation adjustment/debt valuation adjustment).

In its Asian and European units, average bonuses declined by roughly 20%, whereas the U.S. divisions witnessed a 10% reduction. The employees were made aware of this decision last week.

Bankers up to the Vice President rank received either unchanged or higher bonuses, whereas senior bankers below the aforementioned rank received reduced bonuses. However, the leading performers were spared the axe.

Citigroup joins a host of other banking giants who are stressing upon expense reduction initiatives to counter a sluggish economic recovery. Notably, the economic slump has had a severe impact on the securities sales-and-trading business across several large Wall Street firms including Citigroup.

Similar Actions by Other Banks

Earlier this month, Bloomberg reported that Frankfurt-based Deutsche Bank AG ( DB - Snapshot Report ) is contemplating on trimming roughly 20% of bonuses in its investment banking division in Europe for 2012. Even though the plans are in the primary stage, the company is anticipated to declare its final decision by this month. The reduction in bonuses may take place in the range of 10%–20% on an average in Europe, Middle East and Africa. However, locations that achieved healthy results will have much lower bonus cuts.

London-based Barclays PLC ( BCS - Snapshot Report ) is also expected to slash bonuses for investment bankers for 2012 by roughly 20%. The company is taking this step to augment its profit levels. The bonus details are anticipated to be announced in early February this year.

U.S. banking major Morgan Stanley ( MS - Analyst Report ) also reduced compensations of its investment banking unit by 8% and adjourned bonuses of roughly one-fifth of the employees.

Our Viewpoint

We believe in a tepid economic recovery, bolstering revenue has become a challenge. Therefore, to sustain and elevate profitability, banks are undertaking cost reduction measures such as layoffs and bonus cuts. Until a recovery in revenue occurs, such actions are anticipated to help strengthen profit levels and capital ratios.

Citigroup currently retains a Zacks Rank #3 (Hold).