The Banking and Strategy Initiative

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Crisis Theater: Citi's paean to Wall Street

Citi commits to a $400 mln severance writedown, 4500 jobs to go

Citi completed housecleaning at the bank seemingly having run off 90% of its bad bank in the last 3 years. It became the first to announce a


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writedown for its severance program, announcing its part of the Wall Street Job Cut Tour wih 4500 job cuts in “Business areas affected by the Dodd Frank reform” allowing a $400 mln charge in the fourth quarter, for the severance payouts involved. Else wehere modest bonuses on WallStreet also bring back nasty evaluations of stock purchase plans and non cash compensation that made upto 80% of Wall Street payouts in 2008 and 2009.

Bonus Frustration

Variable compensation at Credit Suisse and JP Morgan is under water stocks trading at much lower than their issue price and this being incorporated by most Wall Street banks as the rule on their Var Comp going forward. Europeans (Swiss) UBS and CS have since reworked their latest round of variable comp reducing the fall for the junior tiers in the case of CS. With Forward RoEs at Wall Street  and SIFI banks in general likely to be 66% to 80% lower than 2007 highs, banks are also likely to see deeper cuts in lower priced stock purchase plans and Var comp for time to come even without the super tax.

A decade to writedown (for banks)

With Deleveraging taking two thirds of the lost profits and as a rule of thumb the rest one third lost to limited trading and ring fenced


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investment banking plays, compensation is likely to consider lenient markings on priced stock and any structured options that can be built on ultra low valuations till the results break through on – I suspect – changes in regulation. One reason for change soon is thaat banks fdrive growth outside , and more importantly because cost to taxpayers and investors are lesser when Var Comp is used to pay out instead of treasury cash that could be precious capital for the bank and for the country

Q4 2011 and prospects for 2012

While Q4 revenues at banks could see further earnings downgrades, trading having lost its sheen with no moves in fixed income r commodities to balance the dry spell in Equities, he loss in revenues to rbe reported would have a direct correlation to European exposures at each bank but estimates unlikely to get close at any analyst powerhouse, strategies for trading CDS and FI lost in the noise on DVA allowed and foregone at the banks amongst other sudden burst of media theater after MF Global’s collapse and a certain green cape at Fox news among many others 2012 could be a good reason to build but while investment management and wealth teams may recover quick traction and there may be much larger deals than 2011 for consumer banks, mortgage market dull ness and the pervading jobs situation is likely to keep the pressure on Credit Cards and Personal loans to grow a few extra limbs

WASHINGTON - JULY 18:  Chairman of the U.S. Co...

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