Citigroup says it will cut 11,000 jobs as the government reported Wednesday that U.S. factory orders are up and the growth of service firms accelerates.
Citigroup's plan is described as a bold early move by new CEO Michael Corbat.
The cuts amount to about 4 percent of Citi's workforce. The bulk of them, about 6,200 jobs, will come from Citi's consumer banking unit, which handles everyday functions like branches and checking accounts.
Citi said that it will sell or scale back consumer operations in Pakistan, Paraguay, Romania, Turkey and Uruguay and focus on 150 cities around the world "that have the highest growth potential in consumer banking."
The bank, the third-largest in the country by assets, did not say how many jobs it will cut in the United States.
About 1,900 job cuts will come from the institutional clients group, which includes the investment bank. The company will also cut jobs in technology and operations by using more automation and moving jobs to "lower-cost locations."
Investors appeared to like the move. They sent Citi stock up more than 6 percent on a day when bank stocks were up 1.3 percent as a group. Citi was up $2.4 at $36.43 in midday trading.
Job cuts are a familiar template in a banking industry still under the long shadow of the 2008 financial crisis.
Banks are searching for ways to make money as new regulations crimp some of their former revenue streams, like trading for their own profit or marketing credit cards to college students.
Customers are still nervous about borrowing money in an uncertain economy. And they are still filing lawsuits over industry practices like risky mortgage lending that helped cause the crisis.
Citi fared worse than others. It nearly collapsed, had to take two taxpayer-funded bailout loans, and became the poster child for banks that had grown too big and disorderly.
After a long stretch of empire-building, it has been shrinking for the past several years, shedding units and trying to find a business model that's more streamlined and efficient.
Corbat became CEO in October after Vikram Pandit unexpectedly stepped down. Pandit had reportedly clashed with the board over the company's strategy and its relationship with the government.
While the job cuts are among the first major moves by Corbat, they are in line with Pandit's blueprint. Citi's roster of 262,000 employees is down from 276,000 at this time in 2009.
Glenn Schorr, an analyst for the financial services company Nomura, said that the cuts announced Wednesday might be considered too light by analysts and investors. But he said they were "a step in the right direction" and noted "substantial" job and cost cuts the company has made over the past seven quarters.
Bank of America and Morgan Stanley have also shed jobs over that period.
In a statement Wednesday, Corbat said his bank remains committed to "our unparalleled global network and footprint." However, he added: "We have identified areas and products where our scale does not provide for meaningful returns."
He promised that the bank would continue to trim, whether in "technology, real estate or simplifying our operations."
The paring hasn't always gone as well as Citi has hoped. This fall, for example, when Citi negotiated the sale of its stake in the retail brokerage Morgan Stanley Smith Barney, it got far less than it wanted from the buyer, Morgan Stanley.
Corbat said Citi "has come a long way over the past several years."
Citi said it expects the cuts to save $900 million next year, and more in the following years. They will be a drag, though, in the short term: Citi said it expects to record pre-tax charges of approximately $1 billion in the fourth quarter.
FACTORY ORDERS UP
Orders to U.S. factories rose modestly in October, helped by a big gain in demand for equipment that reflects business investment plans.
Factory orders edged up 0.8 percent in October, the Commerce Department said Wednesday. The increase slowed from a 4.5 percent jump in September.
Orders for core capital goods, a category viewed as a good proxy for business investment plans, increased 2.9 percent in October, the biggest increase in eight months. That represented an upward revision from an initial estimate of 1.7 percent. The increase came after big declines in the investment category this summer.
Orders for durable goods rose 0.5 percent in October, up from a preliminary estimate of no gain, while orders for nondurable goods, items such as chemicals and paper, were up 1.1 percent.
Businesses have been holding back on investment plans because they are worried about the "fiscal cliff." That's the name for sharp tax increases and federal spending cuts that will take effect in January if Congress and the Obama administration do not reach a budget deal by then to avert them.
There is also more caution because of slower growth overseas and Europe's debt crisis. Those developments have cut into U.S. exports and corporate profits.
The 2.9 percent rise in orders for core capital goods in October was the biggest one-month gain since a similar increase last February. It followed a 0.5 percent drop in September and marked only the second advance in the past five months.
U.S. manufacturing shrank in November to the weakest level since July 2009, according to a survey released Monday by the Institute for Supply Management. Worries about automatic tax increases in the New Year cut demand for factory orders and manufacturing jobs.
Consumers may also be getting nervous about higher taxes. Economists cited the fiscal cliff as a key reason consumer spending fell in October by the most since May.
When consumers cut back on spending, businesses typically reduce their pace of restocking. Both trends are expected to slow economic growth at the end of the year.
The economy grew from July through September at an annual rate of 2.7 percent, largely because of strong growth in inventories. Most economists predict growth is slowing in the current October-December quarter to a rate below 2 percent.
However, many economists believe growth will pick up in 2013 if Washington is able to resolve its budget dispute without inflicting serious harm on the economy. Many economists also say that the economy will receive a boost from continued gains in housing construction and from stronger consumer spending that will reflect increases in employment.
GROWTH OF SERVICE FIRMS ACCELERATES
U.S. service companies grew at a slightly faster pace in November because sales and new orders rose, a good sign for the economy.
The Institute for Supply Management said Wednesday that its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion. November's figure is above the 12-month average of 54.4.
The report measures growth in a broad range of businesses from retail and construction companies to health care and financial services firms. The industries covered employ about 90 percent of the work force.
A measure of employment fell to the lowest level since July but still showed companies added workers last month.
One reason for the decline was that Superstorm Sandy forced many businesses to close in November, economists noted.
And some companies may be postponing hiring because of worries over the "fiscal cliff." That's the name for automatic tax increases and spending cuts that are scheduled for early next year, unless the White House and Congress can negotiate a deal that averts them.
"For many businesses, hiring plans are on hold until the New Year, when - we expect - the fiscal cliff will be resolved," Paul Edelstein, an economist at IHS Global Economics, said in a note to clients.
Other economists said the small increase in the services index points to underlying strength in the economy.
The report "supports our view that conditions should look a bit better in a few months' time when all the distortions have unwound," Paul Dales, an economist at Capital Economics, said.
Service companies have been a key source of job growth this year. They have created about 90 percent of the net jobs added since January. Still, many of the new service jobs have been low-paying retail and restaurant positions.
The November report suggests that Superstorm Sandy may have actually helped some businesses. A company in the wholesale trade industry said its business benefited "tremendously" from shipping emergency supplies.
Most other economic reports have shown that the storm slowed activity last month.
Sandy tore through the Northeast on Oct. 29, shutting down businesses and cutting off power to 8 million homes in 10 states. The storm reduced consumer spending and incomes in October, the government said last week.
The overall economy grew at an annual rate of 2.7 percent in the July-September quarter, up from 1.3 percent growth in the April-June period.
The ISM reported last week that its separate index for manufacturing showed manufacturing fell to its lowest level since July 2009, one month after the recession ended. Businesses are ordering fewer manufactured goods because of worries that taxes will rise sharply and government spending will be cut early next year.