Citigroup CEO Jane Fraser testifies during a hearing before the House Financial Services Committee in the Rayburn House Office Building on Capitol Hill on September 21, 2022 in Washington, DC.

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When Citigroup CEO Jane Fraser announced in September that her sweeping corporate overhaul would result in an undisclosed number of layoffs, a shiver of fear ran through many of the bank’s 240,000 souls.

“We will be saying goodbye to some very talented and hard-working colleagues,” she warned in a memo.

The employees’ concerns are justified. Managers and consultants working on the Fraser restructuring — known internally by the codename “Project Bora Bora” — have discussed at least 10% job cuts at several large companies, according to people familiar with the process. Talks are early and the numbers could change in the coming weeks.

Fraser is under increasing pressure to turn around Citigroup, a global bank so difficult to manage that its challenges bankrupted three predecessors in 2007. Already a laggard in all metrics important to investors, the bank has fallen even further behind its peers since Fraser took over in early 2021. It trades at a price-to-tangible book value ratio of 0.49, which is less than that Half the average of US competitors and a third of the valuation of top performers such as JPMorgan Chase.

“The only thing she can do at this point is a really significant reduction in staffing,” James Shanahan, an Edward Jones analyst, said in an interview. “She has to do something big, and I think there’s a good chance it will be bigger and more painful for Citi employees than they expect.”

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Citigroup shares have been in a slump under CEO Jane Fraser.

If Fraser decides to part ways with 10% or more of its workforce, it would be one of the largest rounds of layoffs on Wall Street in years.

Citigroup’s expenses and headcount have soared under Fraser, under pressure from regulatory demands that hastened the resignation of her predecessor, Mike Corbat. While competitors cut jobs this year, Citigroup’s workforce remained at 240,000. This means Citigroup has the largest workforce of any American bank, with the exception of the larger and far more profitable JPMorgan.

An update on Fraser’s plan and its financial implications will be released in January along with fourth quarter results.

Nagging doubts

There’s a lot at stake for America’s third-largest bank by assets. That’s because after decades of stock underperformance, missed targets and shifting targets, Fraser is taking action that analysts have long been calling for. Failure could lead to renewed calls to unlock value through even more drastic measures such as dissolving the company.

Fraser has pledged to boost Citigroup’s returns to at least 11% over the next few years, a key target that would help bank stocks recover. To get close to this goal, Citigroup needs to increase revenue, use its balance sheet more efficiently, and reduce costs. But with the U.S. economy slowing, it could be difficult to achieve sales growth, making spending cuts the biggest lever, analysts say.

“Not a single investor I’ve spoken to believes they’re going to hit that return target in 2025 or ’26,” Wells Fargo analyst Mike Mayo said in an interview. “If they can’t generate returns above their cost of capital, which is typically around 10%, they have no right to stay in business.”

Sources said Fraser put Titi Cole, head of legacy franchises at Citigroup, in charge of the restructuring. Cole joined Citigroup in 2020 and is a veteran of Wells Fargo and Bank of America, institutions that have historically struggled with expenses and headcount.

The Boston Consulting Group also plays a key role. The consultants were involved in creating the bank’s organizational charts, tracking key performance indicators and making recommendations.

Low morale, high fear

Although the project’s codename evokes the turquoise waters of Tahiti, staff have been anything but calm since Fraser’s announcement in September.

“Morale is super, super low,” said a banker who recently left Citigroup and was contacted by former colleagues. “They say, ‘I don’t know if it’s me or if it’s my manager.’ People are preparing for the worst.

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The final number of layoffs will be determined in the coming weeks as the huge project moves from management to rank-and-file workers. But some things are already clear, say the people who did not want to be named when discussing the confidential project.

Executives will see cuts of more than 10% as Fraser pushes to cut regional managers, co-heads and others with overlapping responsibilities, they said.

For example, chiefs of staff and chief administrative officers across Citigroup will be cut this month, one of the people familiar with the situation said.

Operations employees who supported companies that were divested or restructured were also at higher risk of layoffs, the people said.

Citi statement

Even if Fraser announces major staff cuts, investors will likely need to see spending fall before they can be convinced, said Pierre Buhler, banking adviser at SSA & Co. That’s because of the industry’s track record of announcing spending plans only to see costs creep up .

Still, it will be up to Fraser and her deputies to approve the overall plan, and they could choose to focus on cost savings. According to a current executive, the project is primarily about removing unnecessary layers to help Citigroup better serve its customers.

The bank has only publicly stated that costs would fall in the second half of 2024.

Citigroup declined to comment beyond this statement:

“As we have said, we are committed to achieving the bank’s full potential and fulfilling our commitments to our stakeholders,” a spokeswoman said. “We recognized that the actions we are taking to reorganize the company involve some difficult, consequential decisions, but they are the right steps to align our structure with our strategy and implement the plan we presented at our investor day 2022.”

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