Citigroup Said to Cut Bonuses in Investment Bank By About 30%

Citi to Cut Bonuses
Citigroup Center in New York. Photographer: Daniel Acker/Bloomberg

Citigroup Inc., the third-biggest U.S. lender by assets, cut 2011 bonuses in its investment banking division by about 30 percent on average amid slumping revenue, according to a person briefed on the matter.

Some businesses within the securities and banking unit had bonuses reduced by as much as 70 percent compared with the previous year, said the person, who asked to remain anonymous because the decisions aren’t public. The unit, led by James “Jamie” Forese, includes bond and stock trading as well as debt and equity underwriting.

Chief Executive Officer Vikram Pandit, 55, is firing workers and shrinking costs in the unit as he grapples with declining revenue. The bank said this month that it will cut about 1,200 workers from the division to save $600 million this year and more reductions may follow. The unit’s revenue slipped 21 percent since 2009, while compensation and other operating costs climbed 15 percent.

“Our 2011 revenues in certain businesses in securities and banking were disappointing and unacceptable,” Chief Financial Officer John Gerspach, 58, told analysts this week. “If we do not see meaningful revenue recovery over the course of 2012, we will further restructure securities and banking.”

Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said she couldn’t comment on the firm’s pay plans.

Wall Street firms are reining in compensation. New York-based Morgan Stanley, Pandit’s former employer, is cutting pay for senior bankers and traders by 20 percent to 30 percent and is capping immediate cash bonuses at $125,000, people briefed on those plans have said.

Credit Suisse

Credit Suisse Group AG, based in Zurich, cut senior-banker pay by 30 percent and may give some bonuses in the form of bonds backed by derivatives, people briefed on the plan said.

Bank of America Corp. plans compensation cuts averaging 25 percent, with cash bonuses capped at $150,000 and base salaries frozen for some bankers at the Charlotte, North Carolina-based firm, people have said. Goldman Sachs Group Inc. reduced discretionary compensation “significantly more” than the New York-based firm’s 26 percent drop in revenue, Chief Financial Officer David Viniar said Jan. 19.

Citigroup’s fourth-quarter profit fell 11 percent from a year earlier to $1.17 billion. Total revenue fell 7 percent to $17.2 billion, the lowest since the fourth quarter of 2009.

Bank executives have singled out particular units for blame since posting results Jan. 17, including the London-based equities-trading business run by Derek Bandeen. Annual equities-trading revenue plunged by $1.3 billion to $2.4 billion in 2011, Gerspach said on a conference call with reporters that day.

Equity-Derivatives Unit

About half of the decline was tied to the equity-derivatives unit, Gerspach said. This trades in financial instruments whose values are derived from underlying equities, such as shares.

The other half came from the equity principal strategies unit, which traded shareholders’ money, a practice that regulators want to restrict. Citigroup is shutting this operation and most of the staff will leave after Feb. 6, the bank said this week.

“Sometimes when you underperformed, it’s just because you underperformed,” Gerspach said. “The decline year over year in equity derivatives is partly from the markets but it also reflects a certain amount of underperformance on our part.”

On the conference call this week, Gerspach said that results at the investment-banking operation were also “disappointing.”

Declining Revenue

Revenue at the unit, which comes from underwriting debt and equity sales for clients as well as providing merger and acquisition advice, fell 14 percent to $3.31 billion last year. Raymond McGuire and Tyler Dickson run that department.

Securities and banking head Forese reports to Chief Operating Officer John Havens. Citigroup awarded Havens a stock bonus for 2011 worth about $3.47 million on Jan. 17, based on the closing price of Citigroup shares that day, filings show.

Pandit, a former head of equities at Morgan Stanley, received a stock bonus for 2011 worth about $3.7 million. Last year, when Citigroup shares slid 44 percent, he received a base salary of $1.75 million and a retention plan that could be valued at more than $40 million.

Citigroup advanced 1.6 percent to $30.87 yesterday in New York trading and has gained 17 percent this year.

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