Couple of Thoughts on Citigroup Post-Pandit


“I viewed [Pandit’s] resignation as a positive. The board is doing its job, by opening up a new chapter for Citigroup. I take at face value what the board said about his departure. The Citi board is being responsible to shareholders. The bank's performance under Pandit was very bad. Citi's board is opening a potentially new direction, and should be commended.”


Former FDIC Chairman Sheila Bair

The departure of Vikram Pandit as CEO of Citigroup (C) should come as a relief to the markets, regulators and customers – indeed, just about everybody besides the volatility junkies who like to trade this very liquid, very unstable stock.  Apologies to Jim “Mad Money” Cramer. A couple of points:

First, the mess at C starts with the board of directors.  Pandit was brought in as an emergency hire to replace Chuck Prince, the former C general counsel who pretended to be CEO for a very painful but brief period.  The C board at that time was basically a group of cronies who did whatever former CEO Sanford Weill wanted.  Thus when he was toasted in the WorldCom analyst scandal, there was a huge vacuum left behind.

Prince was seen as acceptable by the C board because he was acceptable to former CEO Sandy Weill and his Chairman and political protector Robert Rubin.  Rubin perhaps more than any other single board member, is responsible for the corporate governance fiasco at C.  Now that Dick Parsons, another Weill crony who IMHO also is deeply culpable in this governance mess, has left the scene, C literally has to rebuild its corporate governance and internal controls from scratch. 

Second, the tenure of Pandit at C is yet another case of rape and pillage by a senior manager with no devotion to growing shareholder value.  Like Prince and Weill, Pandit walks away from the wreckage of C with hundreds of millions in compensation.  When are federal regulators going to demand that executive compensation at banks be tied to financial performance?   If Pandit were compensated proportionate to how he rewarded C shareholders, his compensation would be a tenth of what he has received as CEO.

Third point is that I see the choice of the bank’s European and Middle Eastern division, Michael L. Corbat, as a positive for the bank’s shareholders and customers.  C has not had a CEO with OPERATING SKILLS in more than two decades.  Even John Reed, who was shown the door by Weill after the Raul Salinas/Citi Private Banking scandal, was not an operator of banks.  The markets should give Corbat a chance, but his biggest problem is the dysfunctional C board.

Final point is that we should not look for big changes at C in the near term.  C’s business is much smaller than before the crisis, but that also means less ability to generate revenue.  The cash ESP in Q3 2012, ignoring the “extraordinary” charges, was actually quite miraculous.  C is the only bank that actually expanded net interest margins during the period. 

The most important thing for Corbat is to focus on operating the bank and trying to avoid more of these all-to-frequent “extraordinary” charges to earnings.  Corbat needs to get C through the Fed’s next set of stress tests and then focus on running the remaining as well as possible.  You can judge Corbat’s success by how much he is able to stay out of the news. And of course, we will all be watching.  

I am scheduled to be on The Nightly Business Report tonight to talk C.