Wall Street is gaining confidence in
Citigroup
as the bank marches along in its ambitious reorganization.
Citigroup (ticker: C) said on Monday that it has started the next phase of changes that will remove unnecessary management layers and make the bank a leaner organization. Layoffs are a part of the lender’s strategy, with reports at CNBC saying that as much as 10% of Citigroup’s staff could be let go.
“As we’ve acknowledged, the actions we’re taking to reorganize the firm involve some difficult, consequential decisions, but we believe they are the right steps to align our structure with our strategy and ensure we consistently deliver excellence to our clients,” Citigroup said in a press release.
Citigroup also said on Monday that it completed the sale of the Indonesia consumer businesses, marking the bank’s ninth planned exit for strategic purposes. It also noted progress on the planned wind downs of consumer businesses in China and Korea as well as a full exit from Russia.
While Citigroup has been a bank of promises and disappointment for much of the last two decades, Wall Street has been encouraged by recent turnaround efforts. Shares trade at half of tangible book value, well below peers, meaning that any glimmer of a recovery could have a profound effect on shares.
So far, shares have climbed 13.5% over the last month, outpacing the 6% gain in the
S&P 500.
Analysts at Seaport Research believe that headcount reductions could drive cost savings in excess of $2.5 billion over the next 12 to 18 months. The bank’s expense run rate could be “materially lower” than $50 billion by 2025, when Citigroup no longer has to factor in severance and other reorganization costs, Jim Mitchell, senior analyst at Seaport, wrote Monday.
Cost cuts and head count reductions will go a long way in helping to making Citigroup as efficient as peers. The bank currently has an efficiency ratio of 68.4%, which tops peers
JPMorgan Chase
(JPM) at 52.6%,
Bank of America
(BAC) at 63.0%, and
Wells Fargo
(WFC) at 63.9%. Getting expenses below $50 billion is key to narrowing that gap and building upon success there could create more opportunity for the stock.
“Over time, there will be more opportunity to improve efficiency and productivity beyond this initial round of restructuring,” Mitchell wrote. He rates Citigroup stock at Buy with a $62 price target.
Citigroup stock was up 0.2% in Monday’s trading, changing hands at $45.46 apiece.
Write to Carleton English at carleton.english@dowjones.com
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