Citigroup's Cost-Cutting Drive: A Catalyst for Stronger Returns?

Core Insights - Citigroup, Inc. is undergoing a significant transformation to create a more efficient banking operation, which includes changes in its operating model and leadership structure [1] - The company plans to cut 20,000 jobs, approximately 8% of its global workforce, by 2026, building on previous reductions of over 10,000 employees [2] - Citigroup's cost-cutting initiatives may impact short-term profitability but are expected to lead to stronger returns beyond 2026 [3] Financial Projections - Management anticipates expenses of $53.4 billion for 2025, slightly down from $53.9 billion in 2024, with revenues expected to grow at a CAGR of 4-5% by 2026 [4] - The company aims for annualized run rate savings of $2-2.5 billion by 2026 [4] Competitive Landscape - Citigroup's expense management is contrasted with Bank of America's rising expenses, which have seen a CAGR of 4.9% over the past four years due to ongoing investments [5] - Wells Fargo has successfully reduced its non-interest expenses with a negative CAGR of 1.3% over the last four years, expecting expenses of $54.2 billion in 2025 [6] Stock Performance and Valuation - Citigroup shares have increased by 44.3% year-to-date, outperforming the industry average growth of 28.9% [7][9] - The stock trades at a forward P/E ratio of 10.95, below the industry average of 14.95 [11] - Earnings estimates for 2025 and 2026 suggest year-over-year increases of 27.6% and 27.8%, respectively, with upward revisions in the last 30 days [13]