Citigroup's Equities Business in the Firing Line

Jobs in Citigroup's equities business are going to go. We've been saying for several months that Citi's equities business is overstaffed. In its announcement that it plans to cut 11,000 jobs in total and take a $1 billion charge in the fourth quarter, Citi has indicated equities is among the units on the firing line.

The bank said in its press release that it wants to 'improve productivity' in its markets business and to 'streamline its coverage model' in banking. In total, 1,900 jobs will go across the Institutional Clients Group (which includes investment banking and transaction services), of which 950 will come from operations and technology. The remaining 950 jobs will go from areas of low profitability, "like cash equities," Citi said. The bank wouldn't comment.

Citigroup doesn't break out the profitability or the number of people employed in its equities business. However, revenue-wise, it's not looking great. In the first nine months of this year, Citi's equities revenues fell by 10%, placing it among the worst performing banks according to Jon Peace, an equities analyst at Nomura. Analysts at Bernstein put Citi's share of global equities trading revenues at 4.2% and falling, which is not good in a market where scale is seen as increasingly important. In a note last week, Glenn Schorr, an analyst at Nomura, suggested that Citi's equities trading business is 'staffed as a top tier firm but consistently puts up second tier revenues.'

As Schorr's chart below shows, Citigroup's equities sales and trading business is diminutive compared to most other global banks.

Unfortunately, Citi's equities revenues are this diminutive after several years of investment and expansion - particularly in London. "Derek Bandeen [head of equities] and Mike Pringle [head of trading] have built up Citi's equities business very heavily," says one equities headhunter who asked not to be named."They're in a difficult position with equities revenues not looking too rosy."

According the the UK's Financial Services Authority, between April 2011 and January 2012, Citigroup added 159 approved persons to its London equities business. It's since been cutting back, and has removed 39 FSA approved people from the equities business since February. However, Citi has been hiring for equities in Europe, too: in October, it brought on Farooq Hanif from Morgan Stanley as head of insurance research.

One London equities headhunter, says Hanif's hire makes sense. According to this year's Extel Survey, there are a few areas of European equities in which Citigroup's research teams rank in the top three: banks, luxury goods, metals and mining, pharmaceuticals, specialty & other finance, retail, telecoms, tobacco, and utilities. Most of its other research teams aren't top-ranked, suggesting Citi could follow Nomura and focus on a few key sectors in which it's strong whilst pulling out of the rest.

All will unfortunately become clear in the next few months - before bonuses are paid.