Citi Bank Incurs Losses Following Mass Layoffs, Increased Severance Costs

Citigroup, a banking giant, encountered setbacks in its first-quarter performance due to increased costs related to severance payments for laid-off employees and funds directed towards replenishing a government deposit insurance fund.

For the three months ending 31 March, Citigroup reported a significant decline in net income to USD 3.4 billion or  USD 1.58 per share, compared to USD 4.6 billion or USD 2.19 per share, in the same period last year.

CEO Jane Fraser acknowledged the difficulties, noting the completion of the organisational simplification announced in September, resulting in a cleaner management structure aligning with the bank's strategy.

Despite the challenges, Citigroup's services and banking divisions showed promise. Revenue from the division offering cash management, clearing, and payments services for major corporations rose by 8 per cent to USD 4.8 billion, driven by an 18 per cent increase in securities services revenue.

Additionally, a resurgence in capital markets and investment banking fees led to a notable 49 per cent rise in banking revenue to USD 1.7 billion, with corporate lending experiencing a 34 per cent increase.

However, the markets segment faced headwinds, with trading revenue declining by 7 per cent to USD 5.4 billion, mainly due to fixed income and currency operations. Wealth management revenue also decreased by 4 per cent to USD 1.7 billion.

While Citigroup's consumer banking division reported revenue growth, the bank set aside more funds to cover potential losses from loan defaults.

Despite the challenges, Citigroup's stock price appreciated by 18% year-to-date, reflecting investors' confidence in Fraser's initiatives. However, the bank still faces regulatory issues, including urgent modifications requested by U.S. regulators regarding default risk measurement and enforcement actions from the Federal Reserve and the Office of the Comptroller of the Currency in 2020.