Citigroup, widely seen as the sickest Wall Street bank, will make some of the most severe cuts in the history of U.S. business — 53,000 jobs — as it tries to slash costs and get back to basics before it's too late.
The cuts, which will leave Citi about 20 percent smaller, are the latest step in a stunning remaking of the American banking landscape since the financial meltdown, an upheaval that has included the demise of storied investment houses and the conversion of others into commercial banks.
Citigroup CEO Vikram Pandit met with employees Monday and laid out the bank's strategy in stark terms: "We are a bank. What does a bank do? A bank takes deposits and puts them to work by investing and making loans."
Challenger, Gray & Christmas Inc., which has tracked downsizing since 1993, said Citi's cuts are the second-most on record. IBM announced in July it was cutting 60,000.
At its peak in 2007, Citi had 375,000 employees.
About half the cuts are expected to come from selling off parts of the business. The bank has already said it would sell Citi Global Services and its German retail banking businesses, and it plans to unload more, a spokesman said. The rest of the cuts are expected to come from layoffs and attrition.
As investors digested that news, financial stocks had a bad day. Citigroup stock fell 63 cents, or more than 6 percent, to $8.89. The Dow Jones industrials, nearing their lowest close since the financial meltdown began in September, lost nearly 224 points to close at 8,273.58.
The government invested $25 billion in Citigroup as part of the financial rescue package. On Monday, the Treasury Department announced it had given another $33.6 billion to 21 banks in a second round of payments from the program.
Still, the Bush administration has told lawmakers it does not plan to use at least half of the $700 billion bailout fund, congressional officials said. That would leave President-elect Barack Obama to decide how to use the money when he takes office in January. The Treasury Department said no decision had been made on whether to spend the rest of the money before Bush leaves office.
For Citi, the simple, leaner plan is a noticeable change from earlier in the decade, when banks were making a huge chunk of their profits from complex structured-finance products based on risky debt, like subprime mortgages.
Now those revenues have all but dried up, and Citi is trying to extract itself from exotic debt instruments.
"The shocking thing is that the Wall Street business model, prior to September, is effectively gone. We don't have any more independent investment banks," said Lee Pinkowitz, an associate finance professor at Georgetown University Business School.
Pandit told workers the bank was not giving up on investment banking, citing emerging markets as a place that can deliver growth. But the riskiest investment banking businesses are now so slow they can't support thousands of employees.
As Pinkowitz said, the financial crisis took "what was muscle at one point and created fat."
Citigroup, which built up through rapid acquisitions over the past two decades, has long been criticized as too sprawling and difficult to manage.
"Why the heck do they need 350,000 people to start with?" said Robert Howell, a finance professor at Dartmouth's Tuck School of Business. "It's always been way overstaffed. They should've woken up to that fact a year ago when they had way too many people to begin with."
Ex-CEO Charles Prince was shown the door last November after Citi suffered big mortgage losses. He was replaced by Pandit, a former Morgan Stanley investment banker who, while well-respected as a banker, had never led a public company. Nevertheless, most industry analysts have said Pandit's approach — to sell off assets and cut costs — has been sound.
"I guess we are all conscious of the economic situation the whole world is facing and just hope for the best possible arrangements," Maria Francisca Del Orbe, who works at CitiGroup Treasury Systems, wrote in an e-mail. "There is no need for us to start worrying now, but we should wait to see what happens."
And if the bank takes more hits due the worsening credit climate — not only in mortgages, but other consumer debt like credit cards — it might have to keep cutting costs further.
"Of the big banks, Citi is the sickest dog," Howell said.
Of the big four U.S. banks, a group that also includes JPMorgan Chase & Co., Bank of America and Wells Fargo & Co., Citi is the only one that has not made a recent major acquisition — which analysts say is one of the few chances for growth right now. Citi is also the only big bank left that has posted four straight quarterly losses.
In a research note Monday, Buckingham Research analyst James Mitchell wrote that the "the recent bout of expense cuts can get the company's expense levels in line with its peers." But he added that Citigroup has much greater exposure to total risky assets, more than double its peers.
Trying to boost confidence, Pandit told workers Monday that Citi's Tier 1 capital ratio, a key measure of financial strength, is higher than its competitors'. Citi has also doubled its reserves in a year.
In comments to The Associated Press after a business forum in Dubai, Citi Chairman Win Bischoff did not rule out possibility Citi executives would forgo bonuses this year.
"Watch this space," he said when asked about what will become of bonuses.
On Sunday, Goldman Sachs Group Inc. said seven top executives were giving up cash or stock bonuses for 2008. UBS AG said it will stop making bonus payments to its chairman starting next year.
New York Attorney General Andrew Cuomo said in a statement that Citi should follow Goldman Sachs' lead.
"After four consecutive quarterly losses, it seems only fair that top executives should shoulder their fair share of these difficult economic times," he said.