Citigroup to lay off 17,000, overhaul IT operations

The revamp could save $10B and includes shipping 9,500 jobs elsewhere

Citigroup Inc. today announced that it will lay off 17,000 workers as part of a massive restructuring expected to save the company more than $10 billion over the next three years.

The company also announced an overhaul of its IT operations, including the consolidation of data centers, better use of existing technologies, optimization of global voice and data networks, standardization of its application development processes, and vendor consolidation. "Simplification and standardization of Citi's information technology platform will be critical to increase efficiency and drive lower costs as well as decrease time to market," the company said in a statement today.

Citigroup's restructuring follows an expense review conducted over the past three months, Charles Prince, the company's chairman and CEO said in the statement. The goal was to identify and eliminate "organizational, technology and administrative costs that do not contribute to our ability to efficiently deliver products and services to our clients," Prince said. The planned restructuring will put the company in a better position to grow, he said.

In addition to the job cuts announced, New York-based Citigroup said it will also move an additional 9,500 back-office and corporate positions to lower-cost locations, both domestically and offshore. That move will allow it to eliminate some of the duplications that exist in those functions at the business, regional and headquarters level, the company noted.

In total, the restructuring affects about 8% of Citigoup's 327,000 workers.

Other expense-cutting measures include an increased use of shared services for legal, human resources, risk management and financial operations and the sharing of some back-office functions in international markets. The company also plans to expand efforts to centralize all of its purchases. At the end of last year, Citigroup had centralized about 65% of its purchases -- a percentage it hopes to grow to near 100% by the end of 2009.

Such measures should result in savings of about $2.1 billion in 2007, $3.7 billion in 2008, and $4.6 billion in 2009. The changes will cost the company $1.38 billion, pretax, in the first quarter of 2007 and about $200 million, pretax, per quarter for the remainder of the year.

Citigroup's moves are "much needed," said Guillermo Kopp, an analyst at TowerGroup in Boston. "Why it's needed is simply because the expenses at Citi have been growing faster than its revenue." Between 2005 and 2006, expenses grew by nearly 15%, while revenue grew by just 8%, Kopp said.

"There is no silver bullet to generate revenue, so they had to restructure," he said. "The other reason is that Citi is still a top-heavy organization. There's a lot of duplication in management ranks."

What's going to be crucial to watch over the next few months is whether Citigroup is making the job cuts in nongrowth areas while retaining the staffing it needs to compete in high-growth areas such as global wealth management in the U.S and corporate banking in Europe. "There are some fantastic opportunities in some international locations," and it's important that the company retains its ability to compete in them, Kopp said.

"If it's cutting for the sake of cutting without any discrimination, the message is that Citigroup can't downsize to greatness," he said.

The same is true for technology, Kopp said. While there are opportunities to save money through data center consolidations, shared services and standardization, it is crucial that Citigroup apply the savings to high-growth areas, he said. Technology investments in the global financial services industry is growing at the rate of 4.2% a year, he said. Most of these investments are being made in innovative delivery channels such as the Internet, electronic trading networks, mobile banking and increased branch automation, he said. Investments are also needed in building the technology infrastructure necessary to support those delivery channels he said.

"The key is not why they are doing it, but what they are doing," Kopp said. "If it's going to reduce duplication and increase investments in new opportunities, fantastic."

See also today's IT Blogwatch: Citi crunches IT; cans 8% (and geeeks iiin spaaace)

Copyright © 2007 IDG Communications, Inc.

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