Dive Brief:

  • Citi logged about $800 million in severance expenses in the first half of the year and may set aside more for the second half, executives said Tuesday.
  • The New York-based lender had about 219,000 employees as of the second quarter, down about 5% from the year-earlier quarter (230,000 employees), and about 2% from the first quarter (224,000), according to a second-quarter earnings presentation.
  • “We may look at accelerating some of the structural efficiency actions and, in that case, take more severance in the second half,” Citi CFO Gonzalo Luchetti said during a conference call with analysts, declining to provide more detail. “If we see opportunities, we may do a bit more than we originally envisioned.”

Dive Insight:

The last few years have seen Citi working its way through a massive reorganization that resulted in five lines of business and fewer management layers, and transformation work designed to address persistent regulatory issues.

The lender had 239,000 employees in 2023, and in January 2024, announced plans to cut 20,000 jobs by the end of this year.

As Citi resolves its regulatory issues, some roles are being eliminated once tasks are completed, CEO Jane Fraser said earlier this year.

The bank’s second-quarter operating expenses rose 5%, to $14.2 billion, and Fraser said Tuesday the bank would “lean in with additional investments and other actions” if conditions “stay constructive.” The bank also logged about $300 million in severance expenses in the quarter.

Despite Citi recording a return on tangible common equity of 13% in the second quarter, the bank expects its full-year RoTCE to be in the 10% to 11% range, which “implies a sharp decline” in the second half, “likely due to increased investments and additional severance,” JPMorgan Securities analyst Vivek Juneja wrote.

When pressed for more detail around additional severance expectations this year, Luchetti said executives will be “open-minded” if they spot opportunities, and said the bank is focused on realizing efficiencies to fund investments.

That includes spending about $5 billion by 2028 on increased marketing for card acquisitions, strategic hiring in banking and wealth and physical branch refreshes, among other things – “largely self-funded through structural efficiency savings,” Luchetti said at the bank’s May investor day.

Savings are expected by the elimination of stranded costs and transformation costs as the bank completes certain programs, and productivity opportunities from technology and artificial intelligence automation, Luchetti said Tuesday.

“As much of the transformation work winds down, we are not only taking down expenses, but we're applying what we learned about large scale implementation to integrate AI into our businesses and functions, wherever it makes sense,” Fraser said during Tuesday’s call.

Analysts on the conference call sought greater clarity around the bank’s second-half plans. Wells Fargo analyst Mike Mayo said, “you did all this restructuring and it sounds like – is this another sort of restructuring?”

Fraser said the company is operating “100% on the offense.”

“We're going to take advantage of opportunities to bring investments forward, and not just manage to short-term numbers,” she said. “We're playing the long game here.”

During the second quarter, a large amount of the bank’s consent order-related work successfully passed audit validation, Fraser said, and can be sent to regulators. Citi remains under two consent orders from the Federal Reserve and the Office of the Comptroller of the Currency, and bank executives are hopeful that consent order work will be completed this year, Reuters reported in February.

“We are largely now operating at our Citi target state,” she said.

Citi’s remaining work relates to enhancing data governance, particularly for regulatory reporting, and the bank continues to make steady progress, she said.

“In terms of the timing of the removal of the consent orders, that is fully at the discretion of our regulators, both in terms of reviewing the work that we've done, as we hand it over, and then going through their closure process, and that takes time,” Fraser said.