Yesterday was results day for Citigroup and for Bank of America. As we noted at the time, Citi’s equities bankers – who are under threat of redundancy following last December’s cost-cutting memo, did extremely well in the fourth quarter. Unfortunately, this may not be sufficient to save their skins: the 1,900 investment banking redundancies already announced at Citi may simply be a down payment on more substantial restructuring to come.
Separately, Bruce Thompson, CFO at Bank of America, gave a strong indication that compensation will be heavily curtailed at Bank of America this year when he spoke in yesterday’s analyst call.
This is what you need to know with regards to the results of both banks:
1. Citigroup’s $900m cost savings are just the start
Back in December, Citi announced that it intended to make $900m of cost savings before the end of 2013 and that this would involve 1,900 redundancies at the investment bank, of which half would be in operations and half would be in “areas of low profitability” like cash equities.
Yesterday, Michael Corbat, Citi’s CEO said the $900m of cost savings were part of an iterative process and that there will be further cost cutting announcements in 2013. Corbat added that Citi is, “anticipating continuing the re-engineering program,” and Citi CFO John Gerspach added that although Citi’s securities and banking business had a good year in 2012, he’s still not very satisfied with the business’s efficiency.
Corbat is under pressure to cut costs, said Betsy Grasek, banking analyst at Morgan Stanley: earnings per share in the fourth quarter were just 38 cents, versus Morgan Stanley’s forecast of 73 cents.
One equities headhunter in London told us the equities redundancies at Citi are expected to bite in the next few weeks: “Everyone’s waiting for them and they’re expected to be quite heavy.”
Citi declined to comment on the additional cost cutting plans, or on the associated possibility of additional layoffs.
2. Bank of America is likely to have cut bonuses for its investment bankers
Over at Bank of America, there were signs of compensation compression. In the presentation accompanying yesterday’s results, the bank said a 14% quarter-on-quarter reduction in expenses at its global markets (sales and trading) business was “primarily driven by a decrease in personnel expenses.”
With costs under pressure, matters are likely to be made worse by the significant hangover in compensation expenses from previous years. Thompson said BofA will book a cost of $900m in the first quarter as stock awarded as bonuses in previous years takes its toll.
Compensation as a percentage of revenues remains comparatively high at Bank of America. Thompson said the investment banking compensation ratio at Bank of America is steady at 40%, compared 38% at Goldman Sachs, 35% at JPMorgan and lower at European banks.
3. Citigroup might pull back from a few countries, but is happy in Asia
Citi’s Asian results weren’t up to much. In the institutional clients group, revenues fell 1% last year. Nevertheless, Citi is happy with Asia, said Corbat, and expects revenues across the bank in the region to increase by 2-5% in 2013.
However, Corbat did say that Citi is looking carefully at the countries it does business in and that some ‘metrics will be out’ with regards to its country presence soon.
4. Bank of America has been trimming a lot of contractors and offshore employees
Bank of America is still engaged in its transformation under ‘Project New Bac.’ It’s now into ‘New Bac 2’ in which $3bn of costs are being removed, including from the investment bank.
In the fourth quarter of 2012, BofA said it laid off 9,000 people. 5,000 of these were full time staff, with 4,000 being contractors and people working offshore. Therefore, just because you’re in a cheaper offshore location or are working on a short term contract, don’t assume your job is safe.
Bank of America declined to comment on the likelihood of further investment banking redundancies in 2013.
5. Citigroup may well be hiring in operations and technology and commodities
For all its efficiency savings, Citi will also be hiring. Yesterday, Corbat said the bank will continue to invest in operations and technology (although it’s also making some big redundancies here) and that the bank will also be investing in the “build-out of our commodities businesses around the world.”
6. Bank of America is doing some crazy spending on IT
If you get laid off in technology at Citigroup, you may want to move to Bank of America. Brian Moynihan said yesterday that the bank’s technology spending has risen from $2bn to $3.6bn a year as it reworks the entire platform for its trading systems.
On the other hand, you may not wish to join BofA as a contractor or offshore IT worker.