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Tickers in this Article: C
Investment bank Citigroup (NYSE:C) could be planning huge job cuts according to reports over the last few days by CNBC, The Associated Press and other news outlets.

The report by CNBC cites high level executives who estimate the number of layoffs could be as high as 45,000. That's roughly 14% of Citigroup's 320,000 employees. (To read the CNBC article see "Citigroup Plans New Round Of 'Massive' Job Cuts".) To be clear, this is all speculation, and the company hasn't released any numbers or confirmed that cuts are coming.

It's terrible that so many people could lose their jobs, especially right before the holidays (Citi would want to book the severance costs before the new year). I've been there before, and losing your job is an awful thing to go through. However, from a beaten-down shareholder's perspective, which is how I'm forced to think, it could very well prove to be good news.

Good News?
It's important that Citi look like its doing something to cut costs and respond to the massive hits its taken at the hands of its subprime investments.

Earlier this year, Citigroup laid off about 17,000 people, but that was before the company's exposure to the subprime debacle had been revealed to the Street in Q3 (To learn more about the subprime crisis, see our Subprime Mortgage Feature.)

For the last month, the company has been in a reaction mode. Job cuts signal to the Street that the company is going back on the offensive. Perception is important. Since the middle of the year, one of its largest shareholder Prince Alwaleed Talal Alsaud has been calling for "draconian" cost cuts. And I think it's high time that Citigroup deliver.

If the company were to conduct layoffs, it makes sense to do them before the end of the year. That way the bulk of any severance packages and other expenses could be booked into 2007's earnings rather than in 2008. Please don't misunderstand me, from the employees perspective, I don't think the timing could be any worse. After all, the holiday season is just around the corner and the job market on Wall Street is pretty tight. Furthermore, I suspect that many if not most employee stock options are out of the money. (For related reading, check out Get The Most Out Of Employee Stock Options.)

Employee's would be getting a raw deal all around, yet I sense that management could potentially still go through with big cuts because it is beholden to its shareholders.


I think news of a job cut would give the stock a pop heading into the New Year. According to the BBC, the job cuts from earlier this year are expected to save the company more than $2 billion annually, and more than $4 billion by 2009. There is the potential for huge cost savings should the company announce further layoffs, particularly if they are as large as rumored.

Bottom Line
News reports and rumors suggest that Citigroup may be poised to announce significant layoffs. For shareholders, I think that any potential cuts should be viewed as good news. Influential shareholder Prince Alwaleed Talal Alsaud has called for drastic cost cutting measures already, and making the cuts before year-end could make 2008's results look that much better.

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