Citigroup will resume job cuts as the bank battles to contain costs while investing heavily in its risk and control systems to assuage concerns from US regulators preparing to publicly sanction the bank for its failings.
Citi, which last week became the first big Wall Street lender to appoint a female chief executive, was one of a clutch of banks that paused dismissals in March so employees would not fear for their jobs at the height of a global pandemic.
Some banks, including Morgan Stanley, ruled out job cuts for the rest of 2020. Citi opted for an open-ended pause, which is now being lifted. “Citi is moving forward with a limited number of staffing reductions, impacting less than 1 per cent of our colleagues globally,” the bank said late on Monday, in a statement first reported by Bloomberg.
Citi employed 204,000 people at the end of June. It expects its overall staff numbers to remain stable, once the lay-offs are offset against new hires, which have totalled 26,000 this year.
The job cuts will help to offset significant investments in Citi’s operational controls, which regulators have long viewed as deficient and are likely to be publicly admonished in the coming weeks, people familiar with the situation told the Financial Times.
The Federal Reserve and the Office of the Comptroller of the Currency, two of Citi’s most important regulators, are in talks with the bank about a public sanction, known as a consent order, after becoming frustrated with the group’s failure to improve its infrastructure, one of the people said. The Wall Street Journal reported regulators’ concerns earlier on Monday.
Citi has not said which of its divisions would be affected by the job cuts. The bank, the Fed and the OCC all declined to comment.
In a note announcing his retirement last week, Citi’s outgoing chief executive Mike Corbat told colleagues that upgrading the bank’s infrastructure would be a “multiyear effort” and that his successor should “lead this important work from the beginning”. A person familiar with the situation said regulators had not asked Mr Corbat to step down over the issue.
The failings relate to Citi’s inability to produce timely and accurate reports about the risks on its books, and other infrastructure issues, one of the people said, adding that the deficiencies were illustrated by a recent blunder where the bank sent $900m of its own money to a client’s creditors.
“We recognise that errors like this are unacceptable,” Citi chief financial officer Mark Mason told the Barclays’ financials conference on Monday, adding that the bank would invest an extra $1bn in infrastructure in 2020 alone. “There is no greater priority for the entire management team than getting to what we would characterise as a best-in-class risk and control environment,” Mr Mason added.
A Wall Street lawyer said the issues sounded very different from those affecting Wells Fargo, which is still operating under a string of consent orders handed down in 2018, in the wake of a massive mis-selling scandal. Wells’ issues essentially amounted to fraud, the lawyer said, whereas Citi’s appeared to be centred around infrastructure failings, with no suggestion of deliberate deception.
While consent orders can mandate improvements in banks’ systems or changes to how they do business, they can also impose restrictions such as banning banks from certain activities, or imposing a cap on the size of their business, as in the case of Wells Fargo.
Citi’s issues come at a challenging time, forcing the bank to invest in infrastructure when its profits are under pressure from the Covid-19 pandemic and cast a pall following the historic appointment of Jane Fraser as its next chief executive.
Mr Mason said Citi would “hold expenses more or less flat” for 2020.