Taken as a whole, Citigroup is not very efficient. Yesterday, Bloomberg ran an article pointing out that Citi generated $206k in revenues per employee last year. At Bank of America or Wells Fargo, it says the equivalent figure is more than $320k. If Citi wanted to match this, it would need to eliminate 35,000 out of its 262,000 employees, says Bloomberg. It cites Erik Oja, an equities analyst at Standard & Poor’s in New York; Oja thinks Citi is the "most bloated" of all banks.
None of this sounds good if you work at Citigroup. This is particularly so in light of yesterday's New York Times article laying bare the power struggles behind the scenes. Chairman Michael O'Neill, who had himself wanted Pandit's CEO role back in 2008, had been plotting to get rid of Pandit for months, says the NYT. The unsuspecting Pandit stepped into a routine meeting and was reportedly given three options by O'Neill: resign now, resign at the end of the year, or be immediately terminated.
While Pandit was being elbowed aside, O'Neill maneuvered Michael Corbat into place as the replacement CEO, says the Times. Corbat is O'Neill's man. O'Neill is clearly ruthless and has a reputation as a massive cost cutter. Citigroup is horribly bloated. This can only end badly.
And yet, as we pointed out yesterday, Citi's investment bankers aren't really doing that badly. The chart below, from Creditsights, shows that they outperformed all other US banks in the third quarter, increasing revenues 56% year-on-year.
Unfortunately Citi doesn't split out how many people work in its investment bank, so we can't look at the revenues it generates per head in the business. However, it does provide data on its investment banking revenues and profitability. In the first nine months of 2012, the profit margin in the securities and banking area of Citi's institutional clients group was 24%. Yes, this was down on the 28% achieved by Citi in the same period of 2011, but it compares well to the 25% achieved at JPMorgan's investment bank in ytd 2012 and to the 18% margin at Goldman Sachs.
John Havens, Citi's outgoing COO seems to have attempted to defend Citi's investment bankers. When he was told about Pandit's departure, the NYT says Havens, "briefly challenged the directors, pointing to the solid performance of the institutional clients group, and then relented."
In Havens, the implication is that Citi's investment bankers have lost an important defender.
And yet, Citi's investment bankers aren't all exemplars of success.
In the 12 months to December 2011, Citi's UK-based business 'Citigroup Global Markets' made a loss of $358m. The bank hired rapaciously in London in 2011, adding 324 people and increasing its headcount by 8%. In light of the loss, average pay was reduced, but only slightly: the average individual at Citigroup Global Markets in London earned $464k in 2011, down just 7% on 2010.
This makes Citi's London business look vulnerable. Maybe it is. As we've noted various times in the past, Citi's European equities team has been expanded significantly. Despite declining volumes and reduced commissions in the equities market, Citi has yet to cut it back.
However, Citi's results suggest its most vulnerable investment bankers are in the US, with its EMEA bankers coming closely second. In the first nine months of 2012, revenues at Citi's securities and investment banking business were down 43% year-on-year in North America and 34% in EMEA. Unless things pick up soon, cuts will be necessary. But they shouldn't happen because Citi's investment bankers are poor performers or because Citi's global investment bank is particularly unprofitable or nastily bloated. While this may hold true at group level, Citi's investment bank has been doing really quite well. Someone other than Havens needs to point that out.