It's going to be "brutal" at Citigroup, but maybe not here
After Citi informed people in London Tuesday that it was starting a new consultation period as it works its way down through the ranks in CEO Jane Fraser's Bora Bora restructuring plan, insiders at the bank fear the next few weeks could be challenging at Canary Wharf.
"The next two weeks could be brutal for departures," one London insider tells us. After cutting people one and two levels below Jane Fraser, the bank is now expected to remove people three and four levels below the CEO.
Citi is seeking to cut costs by removing duplicate headcount and unnecessary duplication. In the words of another insider there, it still has a long way to go: "There are still so many layers of management, in some cases three MDs in the same reporting structure, with a ton of people below them doing the work while they collect fat paychecks," they complained last week.
In theory, front office revenue generators will not be hit. In fact, Citi has already shown signs of willingness to cut expensive front office people who thought they were safe, like the macro strategists who went earlier this year and who still seem to be sitting out the market.
As Citi cuts, however, one group of managing directors may be more immune than others. Speaking to Barrons late last week, Fraser said Citi is trying to "bend the expense curve," but that it's also trying to drive revenues. And next year, Fraser thinks revenues are likely to come back in one of Citi's key business areas: debt capital markets.
Citi's clients are ready to issue debt because they're resigned to higher rates, said Fraser. “Corporates were thinking they would sit on the sidelines and wait for rates to come down,” she declared. “Now that [interest rates are] higher for longer, we’re seeing them bite the bullet in debt markets. It has been just over seven quarters since we saw changes in rates. History would suggest that at about the seven-, eight-quarter mark, you start seeing more signs of life, as the bid/ask spread starts narrowing pretty rapidly. People adjust their expectations to the new price. So, we are seeing some signs of much more demand and activity. And that’s encouraging.”
Citi's DCM managing directors could therefore receive a stay of execution in the coming cull. This will be good news to some there, who have taken to complaining that the investment grade DCM business has been neglected. "The cash cow at Citi has always been the investment grade bond business," one insider told us in October. "But in the past year, there's been far more emphasis on building out other areas like M&A and leveraged finance."
Away from DCM, Fraser's other favorite place seems to be the treasury and trade solutions business. This is her "jewel in the crown," and has a propensity for delivering double-digit revenue gains.
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