Citigroup — the country's second-largest bank — said Monday it plans to eliminate more than 50,000 jobs. That's about 15 percent of its global workforce.
Like a lot of banks, Citigroup suffered big losses because of the collapse in subprime mortgages. Its efforts to climb out of the hole have been complicated by the economic slowdown.
CEO Vikram Pandit gathered his employees together early Monday to deliver the news everyone was expecting. The company had already cut 23,000 jobs this year. Now it was cutting even more.
"Payroll is probably the biggest cost for any financial institution," noted Chris Whalen, managing director of Institutional Risk Analytics. "If they're going to reduce their cost, they have to cut back on head count."
The cuts were the second-biggest ever announced by any company, according to the job placement firm Challenger, Gray & Christmas, exceeded only by IBM's 1993 decision to cut 60,000 jobs.
Citigroup didn't provide hard numbers, but it did say the cuts would come throughout the company. About half of the cuts would come from attrition or layoffs. The rest will come from the sale of some of its assets, like its German retail banking business.
Citigroup has long had extensive overseas operations. Until now its geographic diversification has been a source of strength. Now it's a vulnerability, according to banking consultant Bert Ely.
"Citi is a globally active company," Ely said. "They're in over a hundred countries, so to the extent that we get a global recession or at least a recession in a lot of countries, that is going to hurt Citi in many of its markets."
Citigroup faces other challenges as well. Far more than other companies, it does a lot of consumer banking. And consumers are reining in their spending.
Whalen predicted that will make it tougher for the company to survive the months ahead.
"As they go through this process, this recession, I anticipate we're going to see record levels of loss for Citi, even compared to the early 1990s," Whalen said.
That is one of the reasons Citigroup's stock has fallen by more than two-thirds this year. Recently it even dropped into the single digits for the first time in a decade. The layoffs are part of an attempt by the company to convince investors they are on top of the problems. But Whalen said there's not much more the company can do to cut expenses without scaling back its operations.
"Because their cost structure is difficult to attack, they have to cut across the board, and it's going to force them eventually to sell some of their overseas operations if they want to survive," Whalen said.
The layoffs also present the company with political problems. Over the weekend, Goldman Sachs announced it was freezing bonuses for its seven top executives, who have traditionally been among the highest-paid people on Wall Street.
Patrick McGurn, special counsel for the corporate advisory firm Riskmetrics, said Goldman was one of the big banks that are drawing from the $700 billion bailout fund approved by Congress in September.
"I think they knew there would be a firestorm if again multimillion-dollar bonuses were being paid out in the wake of the bailout," McGurn said. "So I think some of the top executives decided, frankly, to fall on their compensation swords."
Citigroup also drew money from the fund, and now it is under similar pressure.
On Monday, New York Attorney General Andrew Cuomo called Citigroup's layoffs disturbing and said the company should also freeze bonuses.
Cuomo says executives shouldn't get bonuses while taxpayers, investors and employees are hurting.
Citigroup officials hinted they may follow Goldman Sachs' lead.
But cutting bonuses will be relatively easy compared with the other challenges facing Citigroup. It has to figure out a way to survive the coming months in an environment that's not very hospitable to big banks.