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A Vik-tory for the Board?


By Steve Viuker

And then there were two. With the resignation/firing of Vikram Pandit on Oct. 15, only two of the nine CEOs of the major banks from the 2008 financial meltdown are left: Lloyd Blankfein of Goldman Sachs, and Jamie Dimon of JPMorganChase.
Writing on the SNL Financial site, veteran bank analyst Nancy Bush said she believed that two events played a part in Pandit’s departure: “[his] abortive promise of a dividend increase to the Citi shareholders (which was reportedly nixed by the Fed) and the rejection of his pay package by shareholders last spring. Chairman O’Neill, a famously activist manager, apparently sought feedback from large institutional shareholders after the non-binding vote and got an earful on Citi’s lagging share price, the perceived slow pace of the shrinkage of Citi Holdings (the resting place of the company’s junky crisis-era assets), the cost structure of the company (including executive compensation) and on and on.”
On Oct. 26, The New York Times reported that “Pandit strode into the office of the chairman at day’s end on Oct. 15 for what he considered just another of their frequent meetings on his calendar.”
The Times reported that he was told three news releases were ready: One stated that Pandit had resigned, effective immediately; another said that he would resign, effective at the end of the year; and the third release stated Pandit had been fired without cause. Pandit chose to resign immediately.
Even though Pandit and the board have publicly characterized his exit as his decision, interviews with people close to the board describe how the chairman maneuvered behind the scenes for months ahead of that day to force Pandit out and replace him with Michael L. Corbat, the board’s chosen successor.
On his website, Business Insider CEO and former Wall Street analyst Henry Blodget said: “The shareholders of Citi absolutely did not know the truth about why Vikram Pandit quit. The statements that were issued were technically correct, but they contained a huge lie by omission. Citi shareholders have every reason to feel misled and angry about that. And more broadly, given that this sort of statement is apparently what passes for forthrightness and transparency at a major global corporation, it’s no wonder that everyone thinks that companies are totally full of crap.”
Charles Wendel, president of New York-based Financial Institutions Consulting, told Banking New York that “Citibank needs to set priorities. Where will it focus geographically and on what segments? For example, it has not focused effectively on the U.S. marketplace, which should be a source of stable earnings. It could be a major player in small business and the middle market, if it focused there.”
Wendel praised Citi chairman Mike O’Neill. “He is a very smart banker who has already turned around and refaced a bank [Bank of Hawaii in 2000], albeit a smaller one. I expect him to bring increased discipline to Citi and push it to make decisions about where it is heading and what it should avoid.”
Current CEO Corbat has spent 29 years at Citi, including stints running its corporate lending and wealth management division. Pandit was a hedge fund manager when he joined Citigroup. His predecessor, Charles Prince, was a lawyer. Simon Johnson, who teaches at the MIT Sloan School of Management and is a Bloomberg View columnist, told Bloomberg Business Week on Oct. 18 that Corbat’s familiarity with “the banking side of banking is good.” Johnson went on to say, “A lot of these firms have got themselves tangled up in securities businesses that the CEOs don’t know how to manage. And if he can return them to basics, and making money on those basics, that would be a very good thing.”
Agreeing was Vinod Gupta, General Partner at Everest Capital Partners, Inc. He told Banking New York Pandit “was the wrong guy for Citi. He was a hedge fund manager, not an operating manager. He should have cut costs faster. Michael O’Neill, the new chairman, is a Marine. He is the best manager there is. He turned around Bank of Hawaii in a short time; he will be good for Citi.”
Michael Kaufman, managing partner at Kaufman Dolowich Voluck & Gonzo, said: “When you want people to leave a company, you give them an offer of severance – that is in exchange for them walking away. And this was all about timing. From a timing perspective, Citi could have done a better job. Sometimes you need to [make] a change quickly. While it might not look good, it can be best for the company.”
The timing issue Kaufman alluded to was Citi announcing Pandit’s departure only hours after the bank’s earnings call, as opposed to waiting perhaps a month. And there is a difference with CEOs of public companies and their boards, due to shareholders.
Summed up 5WPR CEO Ronn Torossian: “The ouster at Citi was initially shocking, amidst a decent earning report, and it did shake some of the stockholders. Yet Citi is a giant organization that is bigger than its people. If it keeps looking better, and climbing out of the hole it had been in, this will be a blip on its radar. If it falls and returns quickly to the red side of the ledgers, this incident will be trumpeted as a possible reason, giving more fuel to the issue and to Vikram Pandit’s angst.”
Reaction to the appointment of Tom Corbat as the new Citi CEO has been positive.
The Wall Street Journal had this comment from Wells Fargo analyst Matthew H. Burnell: “Corbat’s elevation strikes us as a positive for Citi, as it brings an experienced banker into the CEO’s role. He is a Citi veteran, with 29 years of experience at the company. In combination with board chairman O’Neill (also a traditional commercial banker) we believe investors – and possibly regulators – will benefit in the intermediate term from their background as traditional bankers.”
In her recent book, Sheila Bair wrote: “The selection of Pandit simply reaffirmed that Citi was no longer a bread-and-butter commercial bank. It had been hijacked by an investment banking culture that made profits through high-stakes betting on the direction of the markets” as opposed to making prudent loans, she writes. She thought Citi needed a more traditional banker to fix the mess it had gotten itself into, but Pandit “wouldn’t have known how to underwrite a loan if his life depended on it.”
The WSJ quoted Bair as saying the “move was good for shareholders, adding that there had been problems with execution at Citi under Pandit, citing the write-down the bank had to take on its valuation of Smith Barney. Bair said that Citi was a “hodge podge of businesses” lacking in strategic direction, and noted that despite a bounceback since the financial crisis it is underperforming its peers.
Said Meredith Whitney: “Vikram Pandit has stepped down as CEO at Citi along with COO Havens. Pandit reportedly referred to himself at the new king at Citi after he replaced former CEO Charles Prince back in 2007. Now it seems, any seat in C’s court should come with a warning label.”

Posted on Wednesday, December 26, 2012 (Archive on Tuesday, March 26, 2013)
Posted by Scott  Contributed by Scott


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