Pointing to additional layoffs at Citigroup Inc. and several top Wall Street executives renouncing end-of-the-year bonuses, New York Gov. David Paterson yesterday said the Legislature must vote on $2 billion of budget cuts today to help balance the current fiscal plan.
The Legislature will convene a special session to work on Paterson's proposed spending reductions, but Senate President Dean Skelos, R-Rockville, has said he does not support mid-year cuts to school aid, one area that the Democratic governor proposes reducing by $800 million.
Assembly Speaker Sheldon Silver, D-Manhattan, supports reducing the current budget before Paterson releases his fiscal 2010 budget plan on Dec. 16, a month earlier than required by law.
Further downsizing on Wall Street and less-than-expected bonuses will affect the state's revenue collections. Citi yesterday announced that it plans to reduce its workforce by 20% overall, which included a mandate for an additional 35,000 job cuts. In addition, leaders at Goldman, Sachs & Co. and UBS Securities LLC, including the banks' chief executives, will forgo their end-of-the-year bonuses for 2008.
"That means that our assumption is probably correct that projections for bonuses will be down even from where they are right now and capital gains, accordingly," Paterson said in a phone conference with the media. "Therefore, the $1.5 billion deficit that we have projected for this time will probably grow to at least $2 billion, which is what we would like to reduce in our budget session tomorrow."
The governor stressed that if the Legislature does not address the current deficit, the state may be forced to roll that shortfall into the fiscal 2010 budget, which begins April 1 and already has an estimated $12.5 billion deficit. While the governor has support in the Assembly, a lame-duck Republican Senate may not support voting on spending cuts today. Democrats will take over control of the Senate when new members are sworn in this January.
"In looking at Albany, and Albany's not being able to cut $2 billion off of a $15 billion problem that has to be addressed in four months is more than irresponsible, it doesn't make any sense, and particularly in light of the fact that no one has presented another idea," Paterson said.
In a statement late yesterday the governor underlined the urgent nature of his request to the legislature.
"Inaction will impede our ability to produce a fair and balanced budget next year," he said. "These difficult decisions cannot be put off any longer. If my colleagues disagree with elements of the budget-reduction plan I have submitted, I ask them to respond by offering their own solutions."
A spokeswoman for Citi, which has assets of $2.05 trillion, said that the cuts announced Monday would include previously announced divestitures. About 18,000 job losses are tied to the anticipated sales of Citi's German bank and of the Citi Global Services unit, which are expected to close this quarter.
A source familiar with the cuts said this round would include "more of a tilt" toward international operations because of greater "layers of inefficiency" in those businesses. Divestitures are likely to include a number of smaller foreign units, such as project finance businesses, and would occur in coming quarters, the source said. Citi is likely to continue to look for jobs to cut after this current round is complete, the source said.
All told, the cuts should largely occur by mid-2009 and would be spread out across business lines and geography, paring the work force to 300,000 employees, the spokeswoman said. A source familiar with the cuts said a significant number are expected in Citi's investment banking operations, though the extent to which the municipal bond department could be affected remains uncertain.
In addition, Citi is in the final stages of making more than 20,000 job cuts announced earlier this year.
Citi also said it plans to cut $50 billion to $52 billion in expenses next year, which would leave costs 19% lower than its total expense base for the previous four quarters. The company did not say how much of this expense reduction would be tied to head-count reductions.
Chief executive Vikram Pandit said Monday: "We entered 2008 with more people, more businesses, and more assets than fit our strategy. There is still a lot of rebalancing ahead of us."
Analysts said Monday's announced job cuts appeared skimpy, given that roughly one-third were already expected. Some said it was encouraging to see Citi putting greater focus on scaling back internationally and said the problem with its far-flung foreign units has not been a lack of revenues but rather the enormous cost of operating those businesses.
Jason Goldberg, an analyst at Barclays Capital, said that nothing outlined Monday was "mind-boggling or radical," though it is further evidence that Pandit is striving for a "more nimble" company. And Goldberg and others said Citi's bid to show a large head-count reduction highlights a sense of urgency on the part of management. "They have to show, and now prove, that they're in control and that they can appropriately handle the things that are out of their control," he said.
Frank Barkocy, the director of research at Mendon Capital Advisors, called the moves "an interim step" for Citi. "This was something that had to be done to break some of the logjam at the company," he said in an interview. "At least it gets them heading in the right direction."
Goldberg said it would make sense to see cuts in investment banking, though he could see room for cuts or divestitures in a number of foreign retail banking businesses, too.
"International is a big part of the business, and we expect it to continue to be a big part," he said. "But there is a global slowdown, and they need to react to smaller revenue overseas."
The cuts and the hastily rescheduled town hall meeting came after a turbulent week at Citi, amid reports that its chairman, Win Bischoff, was under fire from the board of directors, and a new low for the company's share price, which fell below $10 on Nov. 12.
Pandit had originally planned to hold the town hall meeting later this week but moved it up to Monday to address mounting speculation over the number of cuts planned, said a source familiar with the matter. Citi publicly endorsed Sir Win last week, but the company's share price remains under water. On Monday it fell 6.6% to $8.89.