This is shaping up to be a rather bleak holiday for many traders and investment bankers on Wall Street. It was reported today that Citigroup (NYSE:C) plans to decreases bonuses by 10% and eliminate 150 jobs from its trading and investment-banking units before the end of the year. On a conference call last month, the company's new CEO Michael Corbat said that he will "remain extraordinarily focused on our efficiency ratios and our overall expense levels."
The move adds to a larger wave of cuts at the nation's third-largest bank by assets. At the end of 2011, its then-CEO Vikram Pandit announced that Citigroup would lay off 4,500 employees as "part of [...] ongoing efforts to control expenses." Then in July of this year, it was reported that the bank was cutting an additional 350 jobs from its securities division.
Other banks around the world have done the same thing as they struggle to counteract lower fee income and heightened capital requirements. To name only a few, on Monday, the Financial Times reported that the Swiss lender Credit Suisse (NYSE:CS) will cut 100 jobs from its investment bank. At the end of last month, UBS (NYSE:UBS) announced that it would cut as many as 10,000 jobs from its trading and investment banking units. And Bank of America (NYSE:BAC) has been scaling back aggressively as part of its Project New BAC initiative. As my colleague Amanda Alix recently noted, "as 2012 draws to a close, Moynihan has made noises about stepping up the rate of staff cuts."
Needless to say, cuts like these are a double-edged sword. While they're typically accretive to the bottom line -- depending, of course, on the size of the associated severance packages -- they're also a sign that the underlying business is ailing.
Shares of Citigroup are currently up $0.14, or 0.44%, in intraday trading.
Citigroup's chairman makes big insider purchase
In related news, in a filing yesterday with the SEC, Citigroup acknowledged that its Chairman, Michael O'neill, formerly of the Bank of Hawaii (NYSE:BOH), purchased roughly $1 million worth of shares in Citigroup. For obvious reasons, investors often interpret insider purchases like these as a sign of strength.
A recent study found that insiders who opportunistically buy and sell stock in their own companies markedly outperform investors without similar inside knowledge. The study, conducted by economists at Harvard and the University of Toronto, separated subjects into those that trade on a fixed schedule -- like Bill Gates who sells 20 million shares of Microsoft (NASDAQ:MSFT), the company he founded, every three months -- and those that don't. After examining all the insider transactions filed with the SEC between 1986 and 2007, the researchers found that the former group had no advantage over the market while the latter did.
According to their calculations, as reported in the Wall Street Journal, "On a value-weighted basis (where firms with large stock market capitalizations are given proportionately more weight than smaller companies), a strategy of buying and selling alongside [the latter group] yields an annual return that is 9.8% in excess of the overall market. On an equal-weighted basis (where all firms are given the same weight), the opportunistic traders do 21.6% better than the overall market." In other words, there truly is something to be said about taking insider purchases into consideration when determining if and when to buy a particular stock.
Want to learn more about Citigroup?
Citigroup is one of the most difficult banks to get your head around. Beyond being massive, with nearly $2 trillion in assets, it has operations in more than 150 countries around that world, adding currency and geographical risks to the calculation as well. At the same time, however, it trades for a considerable discount to book value. To discover whether the latter point makes this banking behemoth a buy, download our new, in-depth report on the lender by clicking here now.