Jane Fraser, the CEO of Citigroup, has initiated a restructuring plan proving costly for the bank. The plan currently leads to expenses of hundreds of millions of dollars, a significant amount the bank must manage before any financial benefits or savings are realized.
Citigroup Hit by Major Q4 Charges
Citigroup, set to announce its earnings for the fourth quarter this Friday, has alerted its investors about significant charges that negatively impacted its revenue and profits in the year's final quarter.
In a recent regulatory filing, the bank revealed a substantial $780 million dent in its profits from its ongoing organizational restructuring costs. This hefty charge is mainly for covering severance packages and other related expenses in the restructuring process, which includes the layoff of approximately 24,000 employees.
Meanwhile, Mark Mason, the Chief Financial Officer of Citigroup, explained in a recent internal message that the current costly restructuring efforts aim to cut future expenses, streamline the company, and enhance client services. This information was shared on the bank's internal website for employees.
According to Mason, the bank's ongoing simplification process is expected to lower its yearly expenses to $51 to $53 billion. This move is set to help Citigroup get closer to its profit goals.
Citigroup's shares increased at the end of trading, closing up 2.5% for $47.86.
For 2023, Citigroup has kept its expense forecast steady at $54 billion. This projection does not include an additional charge of around $1.65 billion, a special assessment from the Federal Deposit Insurance Corporation (FDIC).
Citigroup, ranked the third-largest bank in the U.S. by assets, is undergoing its most significant corporate overhaul in nearly twenty years. The primary goals of this restructuring are to reduce operational costs, improve profitability, and enhance the bank's stock value.
Citi holds the lowest market valuation among its peers and has faced declining profit margins and underperforming stock for several years.
Following the announcement of these changes, Citigroup's stock experienced a drop of over 1% in pre-market trading on Thursday.
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Citi Faces Unexpected High Charges
Citigroup has disclosed an operating expense of about $1.7 billion, more than its earlier estimates, due to a special assessment by the Federal Deposit Insurance Corporation (FDIC).
This assessment covered losses from uninsured deposits following last year's regional bank failures. The amount exceeds Citi's initial guess of $1.5 billion and even its updated figure of $1.65 billion shared in a recent investor presentation.
However, the most significant impact on Citigroup's fourth-quarter results was setting aside $1.3 billion in reserves. This precaution addressed the heightened financial risks in Argentina and Russia.
Citigroup experienced a revenue loss of $880 million in the fourth quarter due to the devaluation of the Argentine peso. The situation remains tense, with Argentina expected to report an inflation rate of about 200% on Thursday.
As of September 30, Citigroup's net exposure in Argentina was around $1.3 billion, a decrease from $1.6 billion at the end of June.
Russia's economy has faced difficulties due to international sanctions and the expenses associated with its involvement in the Ukraine conflict.
Mason emphasized that the disclosures made on Wednesday do not alter the bank's strategic direction. He anticipates that 2024 will improve the bank's performance and returns.
Mason stated, "We are a bank that can adapt to various economic conditions. Our ability to manage these charges and set aside reserves for potential future challenges underscores the strength and stability of our institution, demonstrating our resilience in all market conditions."
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