Vikram Pandit stepped down as Citi’s chief executive yesterday and resigned from the bank’s board, effective immediately.
The move, which was announced after the close of business in Asia yesterday, took bankers in the region by surprise. “I was totally amazed, I thought he was just getting started,” said one Citi banker. “It caught us by surprise.”
Michael Corbat, Citi’s CEO for Europe, the Middle East and Africa (Emea), has assumed Pandit’s role as CEO and taken his seat on the board.
John Havens, Citi’s president and chief operating officer, as well as CEO of its institutional clients group, has also resigned.
The leadership change will not affect Citi’s business in Asia, according to a spokesman at the bank. “I don’t see any negative for Asia. Why is anyone going to tinker with Asia?”
Pandit left Citi just a day after the firm posted third-quarter results that showed a multi-billion-dollar loss related to its continued exit from Morgan Stanley Smith Barney.
As a result, the bank earned a net income of $468 million, or $0.15 a share, on revenue of $14 billion, down from income of $3.8 billion, or $1.23 a share, in the same quarter last year.
When Chuck Prince ran the show, Citi (and many other US banks) got into trouble with mortgage securities. Prince resigned in November 2007 (with an exit bonus valued at $12.5 million), leaving behind a mess for Pandit to clean up. The ensuing financial crisis just about crippled the bank, which turned to the US government for a $45 billion bailout.
Pandit slimmed Citi down, focused on safer corporate lending and emerging markets, and brought the firm back to profitability in 2010 — when the government cashed out and earned a tidy profit of $12 billion for taxpayers. But the fallout continues.
The parties to Citi’s subprime-related securities class-action lawsuit only just agreed to settle the suit in August for $590 million, in what is the third-biggest settlement so far out of the subprime and credit crisis litigation wave.
Citi’s stock price has never recovered. Tweets on the announcement yesterday included skewering comments about the stock’s dire performance during Pandit’s five-year stint as CEO — it is down more than 90%.
Was he pushed because of rumoured disagreements with some on the board about the direction Citi should take? Did he leave because he’s got another job lined up? Did he simply say, “Why bother, I can do better on my own?” — particularly after, in April, Citi shareholders knocked back Pandit’s proposed $15 million pay package. And is there any connection to the fact that Havens left too? Havens said that he had already been planning retirement from Citi at year-end but decided, in light of Pandit’s resignation, to leave the company at this time.
For now, here’s what Pandit said in the news statement announcing his resignation:
“Thanks to the dedication and sacrifice of people across Citigroup, we have emerged from the financial crisis as a strong institution. Citigroup is well-positioned for continued profitability and growth, having refocused the franchise on the basics of banking. Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm at Citigroup. I could not be leaving the company in better hands. Mike is the right person to tackle the difficult challenges ahead, with a 29-year record of achievement and leadership at this company. I will truly miss the wonderful people throughout this organisation. But I know that together with Mike they will continue to build on the progress we have made.”
In an internal memo to staff he said: “Only you can understand the effort and hard work that was put in to get our company where it is today. There is nothing better than our third-quarter earnings announcement to demonstrate definitively that we have turned this company around. Yesterday’s results show this clearly.”
Many shareholders will not be sorry to see Pandit go. In a new book, Sheila Bair, chair of the Federal Deposit Insurance Corporation, describes Pandit as “a poor choice” to run Citi — “a hedge fund manager by occupation, and one with a mixed record at that”.
The right stuff?
Corbat is a different animal — a veteran Citi banker who has been with the group since his graduation from Harvard in 1983.
In his latest role as Citi’s CEO of Emea, which he took on at the start of the year, he oversaw all of the bank’s operations in one of its biggest market (Asia is still the largest market for Citi outside North America). Before that, he ran Citi Holdings, the group’s portfolio of non-core businesses and assets, where he oversaw the divestiture of more than 40 businesses, offloading more than $500 billion of assets in total, reducing risk on the company’s balance sheet and freeing up capital to invest in Citi’s core banking business.
He has also run the wealth management business and the corporate and commercial banks. In his various advisory and structuring roles, Corbat has successfully guided retail and institutional clients across the spectrum of financial services and significant challenges, from the bankruptcy of Orange county, California, to sovereign debt restructurings in Latin America and business restructurings in North America and Europe.
“Mike Corbat has demonstrated outstanding leadership qualities and the ability to sharpen our focus on achieving strong, sustained operating performance,” Michael O’Neill, chairman of Citi’s board of directors, said in a statement.
Corbat said in the press statement announcing his appointment: “With unprecedented economic, regulatory and political change, my top priority is to keep us focused on what our clients need, both today and tomorrow.”
In an internal memo, Corbat said: “I believe the fundamentals we have in place today are strong and that we are on the right path. However, the environment is a challenging and dynamic one. Regulatory, legislative and economic changes around the world present headwinds as we redefine our relationships with all of our stakeholders. To thrive, we must be vigilant about how we allocate our resources to ensure we are serving our clients and offering the products with the highest potential in the most productive markets. At the same time, we must deliver sustained profitability, improved operating efficiency and shareholder returns while ensuring that vigorous risk management and mitigation are always the cornerstone of how Citi operates.
“As a first step, I’m going to take the next several weeks to immerse myself in the businesses and review reporting structures. These assessments will result in some changes, and I will make sure to communicate these changes with you as decisions are made so that you are informed and updated.”