Dive Brief:

• Citi has cut 1,600 jobs in the second quarter and expects to incur $300 million to $400 million more in expenses during the three-month span than in the previous quarter, largely because of the severance costs, the bank’s CFO, Mark Mason said Wednesday at a conference in New York City.
• Severance costs are booked for 5,000 job cuts this year across the firm, largely in banking, markets and functions, Mason said.
• An ambitious technology transformation initiative, coupled with Citi’s plans to exit from 14 countries — half of which are already complete —are driving headcount reductions, Mason said.

Dive Insight:

Citi’s job cuts include employees who worked in units it’s decided to divest from, Reuters reported, citing an unnamed source. Not all people affected by staff reductions have left the firm, but most were already notified, according to the wire service.

“We remain expense-disciplined around driving cost out and and capturing efficiencies, and sometimes that means reducing headcount,” Mason said.

Citi joins a growing list of U.S. banks in recent months that have announced headcount reductions of 1,000 or more. 

Morgan Stanley in December said it cut 1,600 positions, and later said it expected to cut 3,000 more by the end of this month. Goldman Sachs began a 3,200-position cut in January and said last month it would cut more — though fewer than 250. 

BNY Mellon and Capital One in January said they would cut 1,500 and 1,100 positions, respectively. And Bank of America in April announced it was cutting 1,000 jobs and planned to cut another 3,000 by the end of June.

Wells Fargo CFO Mike Santomassimo hinted at job cuts during a presentation at the same conference attended by Mason.

With attrition slowing, Santomassimo said his bank might have some additional one-time severance expenses it will need to incur to ensure it hits the "run rate that we want to get to by the end of the year in terms of people," he said. Santomassimo also said warned that the bank was continuing to grapple with its commercial real estate exposure.

Citi’s technology transformation plans, which Mason said are in the execution stage, are driving efforts to reduce headcount.

Over time, “we will no longer need the same level of people that we have at this particular phase,” Mason said. “We’re reducing people even further … as we use that technology to automate a bunch of activities that we have to do manually today.”

The bank is in the process of retiring legacy tech platforms. It’s also moving its wholesale credit risk platforms to a common underwriting process, and will no longer need thousands of people over time because of a standardized approach, Mason said. 

Regulatory concerns

Separately, Mason hinted at a challenging regulatory environment resulting from pressure on regional banks. He stressed that the banking industry, “is in a very different place than we were in at the financial crisis.” 

“The balance sheet just more broadly is a lot stronger than it was back then, and Citi specifically as well,” he said.

Pressures affecting the regulatory environment, he said, include higher contributions that banks across the industry will have to make to the Federal Deposit Insurance Corp.’s deposit insurance fund on the heels of recent bank failures. Additionally, banks can expect more intense oversight from examiners likely resulting in more stress tests, as well as regulatory changes affecting regional small and midsize banks, Mason said.

CFO priorities

The Federal Reserve’s decision to leave rates unchanged for the time being, with the prospect of future rate hikes is “a smart way to handle it,” Mason said.

“I read it as a messaging around, ‘We're going to see what the impact has been thus far, but we're prepared to lean in on the idea of tempering inflation if it doesn't continue to go down,” he added.

Citi’s corporate client CFOs, who have expressed concern about interest rate fluctuations, say they are concerned with the effects of an economic downturn and possible recession, Mason noted.

“CFOs that I talk to all over the world are focused on how do I tighten the belt, so to speak, as it relates to expenses, to prepare for an environment where there may be slower growth,” along with discussions about supply chains, Mason said.

“Broadly speaking, balance sheets are pretty strong, but people are still looking to shore those up, in order to have flexibility as valuations perhaps stabilize,” he added.