April 10 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, may cut 5 percent of its workforce, or almost 17,000 jobs, as the company seeks to lower annual expenses by more than $1 billion, said a person with knowledge of the company's plans.

The reductions follow a three-month review by Chief Operating Officer Robert Druskin, said the person, who declined to be identified before tomorrow's announcement. The New York- based company may shut offices, move some of its 337,000 full-and part-time workers to lower-cost locations and combine computer systems to save about $2 billion a year, according to Banc of America Securities analyst John McDonald.

Chief Executive Officer Charles Prince is under pressure from shareholders because Citigroup's stock is trailing competitors and expenses increased twice as fast as revenue last year. The bank 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.

``This is a very crucial period for Chuck Prince,'' said Thane Bublitz, an analyst at Thrivent Financial for Lutherans, which manages more than $70 billion in Appleton, Wisconsin, and held 2.9 million Citigroup shares as of December. ``There has to be some tangible movement in the direction investors want during 2007.''

Prince wrote in a memorandum to employees yesterday that ``we will consolidate certain back-office, middle-office and corporate functions at the business, regional and headquarters levels.'' He said the review ``has not been undertaken on the basis of giving the entire organization an arbitrary number to cut. I firmly believe that you can't shrink your way to greatness.''

Underperforming Stock

CNBC, the business-television channel, reported yesterday that Citigroup's cuts could affect 45,000 people. The New York Times reported today that the bank plans to eliminate or reassign 26,000 jobs, with the biggest cuts taking place in the company's consumer and credit card operations. Citigroup's legal and compliance departments also are being evaluated for potential job cuts, the Times reported. Michael Hanretta, a Citigroup spokesman, said bank officials won't comment on Druskin's plans until tomorrow's announcement.

Shares of Citigroup have gained 13 percent since the 57- year-old Prince took over as CEO in October 2003, or the equivalent of 3.6 percent a year. Bank of America Corp. and JPMorgan Chase & Co. both advanced more than 30 percent in the same period. Citigroup's stock rose 82 cents to $52.40 in New York Stock Exchange composite trading at 4:17 p.m.

`Nimbler Organization'

Prince charged Druskin, 59, in December with building ``a more efficient and nimbler organization.'' Damian Kozlowski, who left as the CEO of Citigroup's private bank last week, won't be replaced. Instead, Sallie Krawcheck, the head of global wealth management, is dividing Kozlowski's responsibilities between two executives in her division.

The decision ``streamlines our organization,'' Krawcheck wrote in an April 5 memo. Russ Morton, a 25-year Citigroup veteran who directed the company's private-client branches, also wasn't replaced when he retired last week.

Prince was criticized by investors including Saudi Prince Alwaleed bin Talal, Citigroup's largest single shareholder, when he pushed ahead with a plan to open more than 1,000 branches last year. Investors want annual expenses to drop by at least $2 billion, said Chris Hagedorn, who helps oversee about 2.6 million Citigroup shares as a fund manager at Cincinnati-based Fifth Third Asset Management.

`Only Average'

``We recognize that while our returns on equity are consistently strong, our margins are at the high end of the industry in some areas but only average in others,'' Prince said in yesterday's memo.

While Citigroup plans to lower costs, Prince also is making acquisitions. The company agreed yesterday to buy Taiwan's Bank of Overseas Chinese for about $426 million and is in negotiations to purchase Nikko Cordial Corp., Japan's third-largest brokerage.

Citigroup also is in talks to buy New York-based hedge-fund manager Old Lane LP in an effort 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 yesterday.

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

Last Updated: April 10, 2007 17:39 EDT