Citi, the banking giant, faced a setback in its first-quarter results as it grappled with increased costs stemming from severance payments for laid-off employees and funds allocated to replenish a government deposit insurance fund.

In the three months ending March 31, Citigroup's net income plummeted to $3.4 billion, translating to $1.58 per share. This marked a significant decline compared to the same period last year, where the bank reported a net income of $4.6 billion, or $2.19 per share. 

CEO Jane Fraser acknowledged the challenges, stating, "Last month marked the end to the organisational simplification we announced in September. The result is a cleaner, simpler management structure that fully aligns to and facilitates our strategy."

Fraser initiated a comprehensive reorganisation in September aimed at streamlining the bank's operations and enhancing performance. However, costs associated with the restructuring efforts surged, driving total expenses up to $14.2 billion. 

As part of the reorganisation, Citi anticipates a reduction in headcount by 7,000 employees, with an expected annualised savings of $1.5 billion.

The bank communicated its largest round of staffing adjustments, including reassignments and departures, to employees in late March. Additionally, Citigroup allocated $251 million to replenish a Federal Deposit Insurance Corp fund that experienced depletion following the failure of three regional lenders last year.

Despite the challenges, Citi's services and banking divisions delivered promising performances. Revenue from the division providing cash management, clearing, and payments services for major corporations increased by 8% to $4.8 billion. The surge was driven by an 18% rise in securities services revenue, amounting to $1.3 billion.

Furthermore, a resurgence in capital markets and investment banking fees propelled a remarkable 49% increase in banking revenue to $1.7 billion, with corporate lending witnessing a notable 34% rise.

However, the markets segment faced headwinds, with trading revenue declining by 7% to $5.4 billion, primarily dragged down by fixed income and currency operations. Wealth management revenue also contracted by 4% to $1.7 billion.

While Citi's consumer banking division reported revenue growth, the bank allocated more funds to cover potential losses from customers defaulting on loans.

In the preceding quarter, Citigroup posted a $1.8 billion loss due to one-time items impacting its earnings. Fraser acknowledged the tumultuous period, stating, "These past months have not been easy," but expressed confidence in the transformative changes made at Citi, positioning the bank for enhanced competitiveness.

Investors have responded positively to Fraser's initiatives, reflected in the company's stock price appreciation of 18% year-to-date, outperforming industry peers and surpassing the S&P 500 benchmark.

Nonetheless, Citigroup continues to face challenges, including regulatory issues and a workforce in flux. In February, reports emerged that U.S. regulators requested urgent modifications to Citigroup's approach to measuring default risk of trading partners. 

The bank is actively addressing deficiencies outlined in enforcement actions from the U.S. Federal Reserve and the Office of the Comptroller of the Currency in 2020, focusing on enhancing risk management, data governance, and internal controls.