Citigroup (C.US) layoffs and insufficient training have become profit concerns. Can the Q3 earnings report bring unexpected joy?

The Zhitong Finance App learned that Citigroup (C.US)'s deficiencies in risk, compliance, and data training caused it to take years to resolve regulatory issues even after investing billions of dollars to carry out comprehensive reforms. The bank's analysis notes that Citi has been working to address the shortage of skilled workers and lacks proper training and assessment tools to address regulatory challenges. Over the past four years, Citibank has been subject to two regulatory censure (known as consent orders), and these issues must be resolved to repeal these laws. The analysis report indicated that employees “lacked compliance risk management skills,” and a December 2023 spreadsheet tracked Citi's progress in various aspects of the consent order. It is worth mentioning that Citigroup will release its third quarter earnings report before the market on Tuesday EST. The market expects both the stock's earnings and revenue to drop, but the stock price will increase by 27.80% during the year.

According to information, four people familiar with the matter said that Citibank CEO Jane Fraser launched a large-scale operation to simplify the bank in September 2023, including firing thousands of employees and reducing management levels, which made the situation more complicated. In the process, some employees involved in issues related to consent orders were also fired. Although Citibank denied allegations that the layoffs impeded efforts to resolve the consent order as a whole, it was unable to verify this from other independent sources.

Citibank's analysis revealed the thoroughness of the problem, indicating that employees' technical skills, including data governance, needed to be improved, but training courses did not adequately address these skill improvement needs. Additionally, areas such as data analysis and digital literacy also need improvement. In key compliance roles, Citibank found that it did not identify the skills needed to succeed, nor did it adequately assess whether employees had the skills needed for these positions.

Despite this, Citibank said it will continue to invest heavily in talent and training to ensure it has the right talent and expertise in key areas such as data, risk, control, and compliance. The bank also said it is actively evaluating the evolving skills needed to be able to recruit and improve skills. Citigroup has invested billions of dollars in a “transformation” aimed at addressing risk, control and data management issues raised by the Federal Reserve and the Monetary Supervisory Service in the 2020 Consent Order. Citigroup's approximately 13,000 employees are working to transform its controls and systems, and thousands more are supporting this effort across the bank.

The Federal Reserve and the Monetary Supervisory Service declined to comment. Citibank CEO Jane Fraser has previously stated that addressing Citibank's regulatory issues is a top priority. Regulators pointed out that Citibank's pervasive risks and data flaws indicate that it is financially secure. In August 2020, Citibank mistakenly transferred nearly 900 million US dollars of its own capital to creditors of cosmetics company Revlon, and was therefore placed on the penalty list.

In July, the Federal Reserve and the US Monetary Supervisory Service once again condemned and fined the bank. The US Monetary Authority also asked Citibank to develop a new quarterly process to ensure that it invests sufficient resources to meet compliance goals. As of mid-July, the plan has yet to be approved by regulators. Last month, Citi announced that its technical director, Tim Ryan, will be responsible for data management with Chief Operating Officer Anand Selvakesari.

Sources familiar with the bank's operations said that Frazer's layoffs led to the removal of some personnel involved in supervisory work. In terms of risk management, a Citibank document lists some of the positions affected by a round of layoffs, of which 67 out of 441 employees were fired or redeployed. Some sources say the layoffs are disrupting jobs because employees worry about their jobs, and losing managers sometimes means a lack of direction. However, Citi has refuted this view, saying that it is very cautious and will not let the layoffs affect the work of the consent order. Citibank said its approach is rigorous and methodical, prioritizing protecting the ability to meet regulatory commitments and speeding up this important work.

On the financial side, Citigroup will announce its third quarter earnings report before the market on October 15 (Tuesday) EST. Wall Street analysts expect Citi's earnings per share for the quarter to be 1.36 US dollars, down 10.5% year on year, and revenue is expected to be 19.01 billion US dollars, down 1.2% year on year. Despite the expected decline in earnings and revenue, Citigroup's stock price is still strong. Currently, the stock price is 65.74 US dollars, with a daily increase of 3.56%. The increase during the year reached 27.80%, and the trading volume reached 15.48 million, showing its continued market leadership and appeal to global investors.

This is mainly due to a series of strategic adjustments, such as the establishment of a new bank management team and a cross-border debit card payment agreement with Mastercard. However, Citigroup is also plagued by legal disputes and fraud lawsuits. Furthermore, Citigroup lowered the target prices of several companies and carried out international transactions, so investors are closely monitoring their stock price trends to prepare for the arrival of the earnings season. For the past four quarters, Citi's earnings reports have all exceeded expectations, and this year's earnings report is also expected to show stronger expectations.

Despite facing regulatory issues and legal challenges, Citigroup's management is taking active steps to ensure the bank's long-term stability and growth. These measures include significant investments in talent and training to ensure banks have the right talent and expertise in key areas such as data, risk, control, and compliance. Investors should pay close attention to Citigroup's financial reports and stock price trends to assess the progress of its reforms and future development prospects.

In summary, Citigroup's inadequate training on risk, compliance, and data, and the impact of layoffs on regulatory efforts have been a long-term obstacle to addressing regulatory issues. Despite efforts to improve skills training and strategic adjustments, the bank still needs to face many challenges.