Updated with market close information, revised return and price ratios, and comments from Evercore Partners analyst Andrew Marquardt and Credit Agricole analyst Mike Mayo.
NEW YORK (
is cutting to the bone.
The company on Wednesday announced a series of moves meant to cut its annual expenses by $900 million in 2013, with total expense savings increasing to $1.1 billion in 2014.
Citigroup's shares rose over 6% to close at $36.46.
The company is looking for the expense cuts to have a very a healthy effect on its bottom line, as the company "expects the repositioning actions to have a negative impact on annual revenues of less than $300 million."
In an effort to focus "on the 150 cities that have the highest growth potential in consumer banking," Citi said it would close a total of 84 branch offices, including 44 in the United States, as offices in Brazil, Hong Kong, Hungary, and South Korea.
The company said that its actions "will result in a reduction of more than 11,000 positions," including 6,200 in the Global Consumer Banking segment, 1,900 in the Institutional Clients Group, and 350 in Citi Holdings, which is the subsidiary into which Citigroup has placed noncore assets, as part of former CEO Vikram Pandit's "good bank/bad bank" strategy to right-size the company's balance sheet.
"In addition to the reductions in Operations & Technology positions that support the ICG and GCB businesses, these actions will result in the reduction of approximately 2,300 positions that support corporate services, real estate, and Citi Holdings," Citigroup said.
Michael Corbat replaced Pandit as Citigroup's CEO in October, after serving as the company's CEO for Europe, the Middle East and Africa, and having previously served as the head of Citi Holdings. Several analysts commented at that time that the change at the top could mean that the company would take more aggressive actions to wind-down Citi Holdings, cut expenses and free-up cash for an increased capital return to investors.
The cuts will result in fourth-quarter charges totaling $1 billion, with an additional $100 million in charges to be recorded during the first half of 2013.
Corbat said that the "actions are logical next steps in Citi's transformation," as the company has "identified areas and products where our scale does not provide for meaningful returns. And we will further increase our operating efficiency by reducing excess capacity and expenses, whether they center on technology, real estate or simplifying our operations."
Citigroup is currently paying a nominal quarterly dividend of a penny a share, and the company has not repurchased any shares this year.
After the Federal Reserve announced its methodology for the next round of bank
, Barclays analyst Jason Goldberg on Nov. 12 said he expects Citigroup to raise its quarterly dividend to four cents a share following the stress tests, while gaining Fed approval to repurchase $2 billion worth of common shares, or 1.7% of shares outstanding, through the first quarter of 2014.
Evercore Partners analyst Andrew Marquardt wrote in a report on Wednesday that the company's "repositioning actions equate to net $0.18/shr annually," or 3% of his "norm" annual earnings estimate of $5.50 a share.
Marquardt called Citigroup's expense cuts "a good early step" by Corbat, and said his firm expected "more announcements (likely next year) regarding add'l repositioning which we suspect may focus on refining the strategic direction of the franchise." The analyst rates Citi "Equal-Weight," with a price target of $36.00.
Credit Agricole analyst Mike Mayo -- a sharp critic of Citigroup over the past several years -- said in a report after Citi's announcement that "the new CEO took a serious playbook off the shelf and started with moves in his old region of EMEA (three of five exit countries)."
Mayo said that "the moves today create a tone that the new CEO will not take half measures," but that his firm was viewing Citigroup's expense cuts "as an initial 'tremor' and that an 'earthquake' or more radical restructuring is needed before the April 16th annual meeting to satisfy activists."
The analyst rates Citigroup "Outperform," with a 12-month price target of $43.00.
Citigroup's shares have now returned 39% year-to-date, following a 44% decline during 2011.
The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for eight times the consensus 2013 EPS estimate of $4.64, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.03.
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Citigroup's shares were up over 3% in premarket trading, to $35.40.
Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.