Citigroup has seen a significant boost in its share price following CEO Jane Fraser‘s announcement of a major restructuring plan in September, which included laying off 5,000 employees to cut costs.
This move is part of an effort to focus on growth areas such as wealth management and investment banking.
Despite the initial positive response from Wall Street, Fraser faces challenges in improving returns and catching up with competitors, amidst regulatory issues, modest earnings, and an uncertain workforce.
Peter Nerby from Moody’s compared the situation to a chess game, indicating that the strategic initial phase has concluded and now the company is entering a crucial middle phase.
Daniel Babkes from Pzena Investment Management expressed confidence in Citigroup’s ability to manage expenses and highlighted its growth prospects, especially in corporate banking.
Since the announcement of the overhaul, Citigroup’s shares have risen 49%, outperforming the KBW bank index’s 26% increase.
However, Citigroup’s stock value remains low compared to rivals, trading at 0.57 of book value, whereas JPMorgan Chase and Bank of America have higher valuations.
The restructuring has also led to internal challenges, with employees hesitant to commit to long-term projects due to fears of layoffs.
This has caused a prolonged reorganization process that affected many organizational levels.
Despite these issues, experts like Ian Lapey from Gabelli Funds see Citigroup’s job cuts and reduced exposure to securities losses as positive signs for the bank’s future.
Analysts believe that achieving Citigroup’s target return on tangible equity could significantly enhance its stock price.
“Citigroup Shares Surge as CEO Jane Fraser’s Major Restructure Sparks Optimism Despite Challenges Ahead”The bank is also focusing on its U.S. consumer business, which lags behind competitors in terms of retail deposits and branch network size.
Plans to grow in six U.S. metropolitan areas, expand digital channels, and increase mortgages are part of Citigroup’s strategy to improve its retail banking performance.
Fraser’s leadership has included hiring key executives for important divisions, a move that has sparked internal concerns about morale amidst layoffs.
However, Fraser maintains that these decisions are crucial for the bank’s success and shareholder value.
Citigroup aims to leverage its global corporate relationships to increase revenue in investment banking and wealth management and has announced a new division focused on client service.
Additionally, Fraser’s strategy includes exiting from 14 markets, with sales completed in nine Asian markets and plans for divestitures in other countries.
The bank’s services division, which Fraser highlights as a key strength, reported record revenue and benefits from Citigroup’s extensive global presence.
This focus on services is expected to contribute significantly to the company’s future profits, despite recent earnings disappointments.
Citigroup will present more details on its strategy at an upcoming investor event and reports its first-quarter earnings soon, following a fourth-quarter loss influenced by one-off charges.