Citigroup looks to slash tech costs - Integration could save more than $1bn

Citigroup looks to slash tech costs - Integration could save more than $1bn
By Francesco Guerrera in New York
Copyright The Financial Times Limited 2009
Published: May 21 2009 22:53 | Last updated: May 21 2009 23:09
http://www.ft.com/cms/s/0/24808782-462b-11de-803f-00144feabdc0.html


Citigroup is ramping up efforts to slash its huge technology costs, with the bank’s management believing it can save significantly more than $1bn in 2009 by integrating hundreds of systems that have been separate for years.

The company declined to comment, but people close to the situation said Citi’s internal projections targeted savings that were a multiple of the $1bn the bank had originally identified for technology in 2009.

The move underlines a shift in strategy being championed by Vikram Pandit, chief executive, to rebuild a company that has suffered billions of dollars in losses and has been repeatedly bailed out by the US government.

Mr Pandit is striving to shrink the troubled bank’s balance sheet and create a more cohesive company out of businesses that have never been fully integrated since the 1998 merger between John Reed’s Citicorp and Sandy Weill’s Travelers.

Citi had originally estimated it could save $3bn over three years by rationalising its operations and technology functions, which employ 140,000 people, including 25,000 software developers – more than many information technology companies.

But progress in reducing overlaps and linking IT infrastructure across businesses that had run individual systems prompted Citi executives to increase its target.

People close to the company say the deal-making tactics employed by Mr Weill, who ran Citi until 2003, favoured keeping IT systems separate as it made it easier to sell businesses.

But Mr Pandit’s lieutenants argue that integrating the disjointed IT infrastructure would cut waste across the group’s sprawling portfolio of businesses.

Don Callahan, a former IBM executive who is Citi’s chief administrative officer, told investors last year: “If you think about Citi when Sandy was leading it, each of these businesses had very strong returns, and the economics to the shareholder was quite nice. But there was something that was being left on the table. [What] was clear to us was that it wasn’t integrated.”

Citi does not disclose its exact operations and technology costs but regulatory filings show that IT and communication expenses were $4.9bn in 2008. Operations costs are believed to amount to several billions more.

People close to Citi said increased savings in IT would not have a major impact on its target of reducing overall expenses to $50bn-$52bn by the end of 2009 from $71bn last year.