Job Cuts Loom At Citi, Sun Microsystems
Citigroup is expected to cut at least an additional 10,000 jobs in its investment bank and other divisions worldwide, according to a report Friday in The Wall Street Journal that cited anonymous sources.
Citigroup eliminated 11,000 jobs during the third quarter, bringing its total headcount reduction through the first nine months of the year to 23,000. It had 352,000 employees at the end of the third quarter.
The report also said Citigroup plans to increase interest rates for its credit card customers as it looks to reduce expenses and increase revenue amid the ongoing credit crisis that has led it to post four consecutive quarterly losses.
Citigroup in October reported a third-quarter loss of $2.8 billion, or 60 cents per share, as it struggled with the credit crisis that began last year. Citigroup has been among the hardest hit.
As mortgages have increasingly defaulted over the past year and a half, bonds backed by the troubled loans have lost much of their value. That has led investors to shy away from all but the safest forms of debt. Citigroup has taken billions of dollars in write-downs on the value of those types of investments as it also faces rising losses from mortgages it originated in recent years.
Broader economic woes have also led customers to start defaulting on other loans as well, such as credit cards, leading to losses in that division.
About 20 percent of Citigroup's credit card customers could see their interest rates raised by an average of 3 percentage points as the financial services firm looks to return its card division to profitability, according to the Journal report.
Meanwhile, Sun Microsystems Inc. plans to cut up to 6,000 jobs, or 18 percent of its global work force, as sales of high-end servers have collapsed.
The drastic move announced Friday highlights Sun's desperation to cut costs and survive as an independent company. Sun's shares have fallen so steeply they've crossed an ominous threshold, driving the company's market value below its cash on hand.
The Santa Clara, Calif.-based company said the job cuts will include between 5,000 and 6,000 employees over the next year. The cuts should save an estimated $700 million to $800 million annually.
Sun expects charges of $500 million to $600 million spread out over the next twelve months to pay severance and other restructuring-related costs.
Sun also said its software chief, Rich Green, has resigned.
"These are hard but necessary changes," Jonathan Schwartz, Sun's chief executive, said in an interview.
He said the company has been deeply wounded by the credit crunch, because customers can't get loans to buy expensive servers. A quarter of the Sun's business comes from the ailing financial services sector.
Sun shares closed Thursday at $4.08, giving Sun a market value of $3.01 billion. At the end of September, Sun had $3.1 billion in cash on hand. The gap indicates the market's perception of Sun is so poor the company's worth less than its horde of cash and short-term investments, a grim sign about Wall Street's optimism about the company's prospects.
Sun posted a loss of $1.68 billion in the latest quarter, ended Sept. 28. It also wrote down the value of the business by $1.45 billion. The huge goodwill impairment shows how badly Sun's reputation has been hurt in recent months as the credit crunch has strangled lending and sales of its most expensive and profitable products have plummeted.