World’s largest bank to axe 9,000

Apr 19 2008 by Iain Laing, The Journal

THE world’s largest bank announced plans to cut 9,000 jobs yesterday but relief over its lower than expected losses from the credit crunch gave a boost to the wider banking sector.

Bank shares recovered earlier falls after US Citigroup revealed losses had almost halved to £2.6bn in the first three months of 2008 – compared to £4.9bn in the previous quarter.

The group continued to suffer – taking a £7.6bn hit – but the news was received positively by investors braced for worse. The 9,000 jobs from Citigroup’s 370,000-strong global workforce will go over the coming year. A spokesman would not comment on UK cuts, where the group employs 11,000.

In London, bank shares had suffered in early trading after reports that NatWest parent Royal Bank of Scotland was planning to tap shareholders in a multi-billion pound rights issue to strengthen its balance sheet.

RBS dropped more than 3% at one stage, dragging fellow banks lower as fears grew that the move could open the flood gates for other similar moves.

But investors reacted positively to Citigroup’s results and to analyst views that UK bank rights issues would clear the air over funding concerns. RBS shares later recovered to close nearly 5% up, while Alliance & Leicester gained more than 4% on a day when the FTSE 100 Index closed more than 1% higher above the 6000 mark.

RBS has so far failed to scotch reports of plans for a rights issue raising between £5n and £12bn at its annual general meeting next Wednesday.

It has said only that it “notes recent speculation”, adding: “RBS confirms that its interim management report covering trading performance and capital will be made next week.”

Richard Lambert, CBI director-general, said banks were right to appeal to shareholders for additional funding.

Speaking at a business event in Scotland, he said: “It is clear that the global banking system is going to need fresh capital from shareholders in the coming months.

“This week came news that JPMorgan Chase, one of the strongest banks in the world, is raising new equity. Today comes speculation that the Royal Bank of Scotland is planning to do the same.

“It is right that these major banks should be taking a lead in raising new equity and rebuilding confidence.”

While the move could raise billions of pounds for RBS, it may also place further pressure on group chief executive Sir Fred Goodwin. Shareholders could demand that he steps down in return for their financial injection.