In a fresh sign of how the economic downturn is squeezing banks, Citicorp, the nation’s largest banking company, said Tuesday that it plans to lay off an additional 4,400 workers and expects to report a fourth-quarter loss of between $300 million and $400 million.
The new layoffs will bring the total number of employees Citicorp has let go since the beginning of the year to 8,000, or close to 9% of its total work force of 92,000 at the end of 1989. Citicorp has operations in California, including a savings and loan, Citibank FSB, and several commercial loan offices. Citicorp spokeswoman Amy Dates said she could not immediately determine if some of the layoffs would be in California.
Citicorp’s projected fourth-quarter loss, after similar deficits by banking giants Chase Manhattan and Security Pacific, stems from its setting aside additional money to cover bad loans and from the expected costs of its job cuts.
Citicorp also said it will cut its dividend to stockholders, a move advocated by federal banking regulators to help save cash and make shareholders--instead of taxpayers or customers--suffer part of the impact of problems at weaker banks.
The massive restructuring comes during a time of increasing concern by federal regulators about the health of the nation’s banking system. A congressional report released earlier this week said many banks were insolvent. The Federal Deposit Insurance Corp., which insures depositors against losses, may also run into multibillion-dollar losses.
The moves also follow Citicorp’s regular annual checkup by federal bank examiners, who are understood to have spurred several of the moves announced Tuesday, including requiring a big increase in reserves that the bank has set aside to cover losses on commercial loans. Citicorp is the parent of Citibank.
Banking industry analysts said the loss reflects the severe downturn in the Northeast economy, which has boosted Citicorp’s portfolio of problem commercial real estate loans. Most analysts viewed the Citicorp move merely as a first step and said the company probably will have to cut its profits to make additional big provisions to cover loan losses next year.
But Dates said: “We’re not making any predictions for next year.”
Even with the latest losses, Citicorp’s problems are still far from the level of severity that have driven many smaller banks into insolvency. Taking into account the big loss for the final three months of this year, the firm still expects to report net profit for the full year of between $400 million and $500 million. In 1989, the company reported a fourth-quarter net loss of $784 million but a profit of $498 million for the full year. But it earned $1.86 billion in 1988.
In its announcement, which it said was sparked by press reports on the banking company’s financial health, Citicorp said it will slash the annual dividend paid on its common stock to $1 per share from $1.78. That will save the company an estimated $260 million annually.
Charles W. Peabody, a banking analyst at the brokerage firm of Kidder, Peabody & Co., said the dividend cut will make it easier for Citicorp to raise additional capital it needs through an expected sale to overseas investors of $1 billion in new convertible preferred stock.
Peabody noted that Citicorp is not alone in facing problems with commercial loan losses. “There’s no question that there’s been a very severe deterioration in these loan portfolios,” he said. “If the economy continues to slide, that portfolio could impair the survivability of some of our largest banks.”
These concerns have prompted federal regulators in recent weeks to assess the need for new steps to safeguard the industry, including shoring up federal deposit insurance. They were also partly behind recent moves by the Federal Reserve to ease credit and lower interest rates.
In recent months, other big banks have been forced to swallow bitter pills because of the sagging economy. Two other giant New York-based banking companies, Chase Manhattan and Chemical Banking, also sharply cut their dividends and reported steep losses because of increasing loan losses. Chase said it was cutting 5,000 jobs.
Last week, Los Angeles-based Security Pacific said it expects a fourth-quarter loss of as much as $360 million and plans to cut some operations that have a work force of 4,000.
Bank examiners are believed to have ordered Citicorp to increase sharply its reserves against commercial loan losses. The company said the reserves--which act as a buffer to absorb losses on bad loans--will be $340 million for the current fourth quarter, an increase of $250 million from the previous quarter.
Raphael Soiffer, a banking analyst with Brown Bros. Harriman, said Citicorp has a heavy portfolio of commercial real estate loans made in the New York City area, where the real estate downturn has been even more acute than in most other areas of the Northeast.
Peabody and Soiffer predicted that Citicorp will significantly boost reserves further, in part because its current reserves are drastically below the industry standard. Peabody said the new reserves will cover possible losses on only 18% of Citicorp’s loans, contrasted with an industry average of 73% and about 50% for other big “money center” banks in New York.
Under an international banking agreement, Citibank, like most banks, is under intense pressure to increase its capital by the end of 1992.
Citicorp stock rose 75 cents per share to close at $14.125 in New York Stock Exchange trading Tuesday.