Citigroup, third-biggest U.S. bank, is contemplating more spending cuts at its securities unit after having invested almost $1 billion in the business last year - and still failed to boost revenue.  Just last week, Citi announced 1,200 job cuts, in an effort to save $600mn this year at the Securities and Banking division. As large as these cost cuts and staff reductions are, the bank may “further restructure” the division if revenue doesn’t rebound in 2012, according to CFO John Gerspach on a Tuesday conference call.  Profits at the unit fell 24% last year to $4.9 billion as Europe’s sovereign-debt crisis rattled world markets.

“We are not oblivious to the fact that our cost structure cannot be justified by our current revenue. While much of the current difficulty reflects market conditions, we equally have some management and execution challenges.” -- CFO Gerspach.

The retrenchment shows how a global slowdown in deal-making and trading has thwarted CEO Vikram Pandit’s efforts since the bank’s $45 billion U.S. bailout in 2008 to increase revenue, in part by recruiting talent.  Revenue in the securities unit is down 21% since 2009, while compensation and other operating costs have climbed 15%. ‘Operating Leverage’. Gerspach, 58, said Citigroup needs the business to improve “operating leverage,” which happens when a company increases revenue faster than costs. The Securities and Banking unit includes stock and bond trading, mergers advice and equity and debt underwriting.  “We must either drive revenue growth and operating leverage, or we will have to restructure, cut capacity and cut expenses,” he said.  The unit is run by James Forese, 48, who reports to COO John Havens, 55. Gerspach said results in equities trading and investment banking were “disappointing.”  Revenue from investment banking, which includes merger advisory and securities underwriting, fell 14% to $3.31bn last year. Raymond McGuire and Tyler Dickson run that department. Revenue from equities-trading, led by Derek Bandeen, fell 21% to $2.76bn. Bank representatives declined to comment. ‘Upgraded Talent’. The bank invested $3.9bn last year in all of its businesses, including initiatives to meet regulatory requirements, modernize branches and boost spending on consumer marketing - according to CEO Pandit during a 1/17/12 conference call with analysts and investors.  He added:  “We also upgraded talent in both our institutional and consumer businesses." The securities unit accounted for “a little less than $1 billion” of the investments, Gerspach said today.  "We identified businesses in S&B that we believed were strategically important to our long-term success, but where we lacked scale,” Gerspach said. “Our investment spending left us with less expense flexibility in 2011, particularly as markets began to weaken in the second half of the year.” ‘Expensive Traders’. Job cuts that began late last year eventually will total 5,000, Gerspach told reporters last week, or about 1.9% of the company’s 266,000 employees as of 12/31/11.  He also noted that about 1,200 of the job cuts will come from the securities and investment-banking unit. “It was unwise to spend significant sums of money hiring expensive traders and investment bankers,” said Atlantic Equities analyst Richard Staite, who has an “overweight” rating on the bank’s shares. “Citigroup should focus on lower-risk activities, particularly transaction services, consumer banking and straightforward corporate banking.” Until European officials forge an “achievable and sustainable” resolution to the crisis, markets will continue to experience “periods of calm and then followed by a period of uncertainty,” Gerspach said.  He continued, noting that, “Europe continues to remain an overhang on the market. It still is very much up to Europe to figure out whether or not they can come up with an achievable restructuring that will settle things down on a more permanent basis. And I think that’s yet to be seen.” For further details, go to:  [Bloomberg, 1/24/12].