April 11 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, plans to reduce annual spending by $4.6 billion in the next three years and eliminate 17,000 jobs to bring costs in line with rivals such as JPMorgan Chase & Co.

Citigroup will shut offices, including about 45 Smith Barney branches, and shift some of its 337,000 full- and part-time workers to lower-cost locations such as Poland and Buffalo, New York, Chief Operating Officer Robert Druskin said today in an interview. The job cuts, mostly among support staff, represent about 5 percent of the New York-based bank's workforce.

The strategy is Chief Executive Officer Charles Prince's answer to shareholders who took aim at his leadership as the stock trailed rivals and expenses increased twice as fast as revenue, reaching $52 billion in 2006. Prince's plan, which includes about $2 billion in previously announced savings from combining computer systems, will eliminate about half the positions the bank added last year.

``This is classic Chuck Prince,'' said Bill Smith, CEO of Smith Asset Management in New York, which has about $70 million under management and holds Citigroup shares. ``He knew he had to do something, so he did as little as possible.''

Citigroup's stock fell 60 cents, or 1.2 percent, to $51.80 in New York Stock Exchange composite trading at 4 p.m. The shares have gained 13 percent since Prince took over as CEO in October 2003, or the equivalent of 3.6 percent a year. Bank of America and JPMorgan both advanced more than 30 percent in the same period.

Moving Jobs

The bank will take a $1.38 billion pretax charge in the first quarter, and additional charges of about $200 million in subsequent quarters of 2007, it said in a statement. Savings will total $2.6 billion from the reductions by next year.

About 57 percent of the job cuts announced today will be outside the U.S., Druskin said. Unprofitable consumer units in Europe will be shut and some positions will move from the U.K. to Poland. In the U.S., Citigroup plans to move some jobs from New York City to Buffalo, after obtaining about $1.5 million from the state in exchange for adding jobs to the western New York city.

Companywide, headcount growth will slow ``significantly,'' Citigroup said.

Of the 9,500 jobs the company said it's moving to other locations, about two-thirds will occur through attrition.

New York City

``The bad news is that they will reduce their employment by about 1,600 workers'' in New York City, Mayor Michael Bloomberg said. Still, the mayor said he was ``optimistic'' because the company will continue all of its plans for real-estate expansion in the city.

Citigroup is New York City's largest employer, with 27,000 full-time and 3,000 part-time or temporary workers, Bloomberg said. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

``The big question on everyone's minds is, will this translate into better top-line growth?'' said Steve Lampe, a money manager at Delaware Investments in Philadelphia, which has assets of about $150 billion, including Citigroup stock. ``It is turning a battleship, and you need to do that right.''

Citigroup struggled to keep expenses under control last year. Profit rose 7 percent in 2006, while earnings at JPMorgan, Citigroup's biggest New York-based rival, surged 70 percent.

Druskin's Mandate

``I charged Bob Druskin and our management team with a simple directive: eliminate organizational, technology, and administrative costs that do not contribute to our ability to efficiently deliver products and services to our clients,'' the 57-year-old Prince said in today's statement.

Citigroup probably will report next week that first-quarter earnings rose less than 1 percent to $1.09 a share, according to the average estimate of analysts surveyed by Bloomberg.

Prince promoted 59-year-old Druskin in December, giving him a mandate to reduce expenses after shareholders, including Saudi Prince Alwaleed bin Talal, complained that costs were rising too fast. About $11 billion of Citigroup's $52 billion in expenses last year was incentive compensation that wasn't considered as part of the cost-cut review, Druskin said.

Citigroup executives including Sallie Krawcheck, the head of global wealth management, and Michael Klein, co-president of Citigroup's corporate and investment banking unit, have begun implementing Druskin's cuts by combining or eliminating executive jobs. Damian Kozlowski, who left as the CEO of Citigroup's private bank last week, won't be replaced. Krawcheck is dividing his responsibilities between two executives in her division.

Planning Acquisitions

While Citigroup plans to lower costs, Prince also is making acquisitions. The company agreed earlier this week to buy Taiwan's Bank of Overseas Chinese for about $426 million and is negotiating to purchase Nikko Cordial Corp., Japan's third- largest brokerage, for more than $13 billion.

Citigroup also is in talks to buy New York-based hedge-fund Old Lane LP to land Vikram Pandit as head of its alternative- investments group, which includes private equity and real estate, a person with knowledge of the discussions said April 9.

To contact the reporter on this story: Joseph N. DiStefano in New York at jdistef@bloomberg.net.

Last Updated: April 11, 2007 16:25 EDT