Smith Barney write-down helped seal Pandit's ouster: Source

Board also said to be upset by dividend debacle and ratings cut

Oct 16, 2012 @ 11:42 am

Citi, Pandit, Smith Barney, Morgan Stanley
+ Zoom
((Photo: Bloomberg News))

Citigroup Inc. (C) directors ousted Chief Executive Officer Vikram Pandit after concluding his mismanagement of operations caused setbacks with regulators and cost credibility with investors, a person with knowledge of the discussions said.

Episodes that led the board to replace Pandit with Michael Corbat included the rejection by regulators in March of a plan to boost shareholder payouts, said the person, who requested anonymity because board deliberations are private. Citigroup's $2.9 billion writedown on the Smith Barney brokerage unit and a two-level cut of its credit rating by Moody's Investors Service also contributed, the person said.

Directors had discussed whether to replace Pandit for months, even before the appointment of Michael E. O'Neill as the new chairman in April, the person said. O'Neill, a board member since 2009, and other directors became increasingly frustrated with Pandit's performance, and Corbat told the staff today that a shakeup may follow.

Corbat, 52, called himself “a true believer in this company” after spending his entire career at Citigroup, according to the memo. “I'm going to take the next several weeks to immerse myself in the businesses and review reporting structures,” he wrote. “These assessments will result in some changes.”

Parsons Exit

The ousting of Pandit, 55, and departure of Chief Operating Officer John P. Havens, 56, came six months after O'Neill, 65, took over from Richard Parsons as chairman at the third-biggest bank in the U.S. by assets. Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment on the change and O'Neill didn't respond to e-mailed inquiries.

Corbat “is a proven, hands-on leader who is known for his focus on enhancing productivity, holding people accountable and practicing sound risk management,” O'Neill said in today's statement. “He has consistently delivered impressive bottom- line results at many of our major global business units.”

The new CEO also has better relations with regulators after running Citi Holdings, the division with some of the lender's most distressed assets, the person said. Corbat takes the helm immediately as Pandit leaves both his executive role and his seat on the board, according to a Citigroup statement.

Stock Gains

While Citi's stock price had gained 39 percent this year through yesterday, it remains down about 90 percent since Pandit was publicly named as CEO in December 2007, when losses tied to the brewing financial crisis drove out his predecessor, Charles O. “Chuck” Prince.

O'Neill, a former CEO at Bank of Hawaii Corp., was among directors who joined in 2009 to bolster the panel's banking experience after its near-collapse and U.S. bailout. He chaired a committee that oversaw Citi Holdings, which would have brought him into close contact with Corbat, CEO of the unit at the time.

Pandit said he doesn't regret any decisions during his tenure.

“It's hard to come up with things we should have done differently,” he said in an off-camera interview for Bloomberg Television's “Lunch Money,” recalling how he navigated through the credit crisis, which was already in progress before he became CEO, and repaid a $45 billion bailout. “I was first out of the box to raise capital. I feel very good about the decisions that we've made.”

Moving On

Pandit said he didn't want to linger in a “lame-duck session” with the company and second-guess his replacement.

“I've been thinking about this for a long time,” Pandit said, adding that he concluded it was time to go yesterday. “It was my decision. I made it talking to Mr. O'Neill, and we did it understanding that the company was ready.”

The departure will help the company, said Sheila Bair, who clashed with Pandit when she was chairman of the Federal Deposit Insurance Corp.

“This was a very positive move,” Bair said today in an interview with Tom Keene on Bloomberg Radio. “I did have concerns about Mr. Pandit's qualifications to serve as the CEO of the largest commercial bank, because he had never been a commercial banker.”

Harvard Degree

Corbat has worked at Citigroup and predecessor companies since graduating from Harvard University in 1983, according to today's statement. As CEO of Europe, Middle East and Africa operations, he oversaw consumer banking, corporate and investment banking and trading in that region. Before that, he was CEO of Citi Holdings, supervising more than 40 divestitures.

“The international business is where they live and die, so hopefully this fellow, because of his background, is going to be able to focus on that and retain that and then develop a model for the future,” said Chris Whalen, a senior managing director at Tangent Capital Partners LLC, on Bloomberg Television. The management change “is very disorderly and I think they need to explain to us why this timing made sense from the board's perspective.”

If no alterations are made to Pandit's compensation, Citigroup will have paid him about $261 million in the five years since he became CEO, including his personal compensation and about $165 million for buying his Old Lane Partners LP hedge fund in 2007 in a deal that led to his becoming CEO. The bank shut Old Lane soon after Pandit took the post, causing a $202 million writedown.

Pandit's Career

Pandit spent 22 years at New York-based Morgan Stanley before quitting in 2005 amid a power struggle under then-CEO Philip Purcell. Havens, who ran equities at Morgan Stanley, quit around the same time and in 2006 helped Pandit start Old Lane.

Citigroup bought the hedge fund in 2007 for $800 million and incorporated it into Citi Alternative Investments, the bank's private-equity, real estate and hedge-fund investment division. Pandit was placed in charge of the unit, which had lacked a full-time CEO for about a year.

The bank shut the fund shortly into Pandit's reign as CEO, amid a spate of hedge-fund failures, purchasing its assets and allowing investors to take their money out.

“The job was about transformation and turnaround, and we've done the turnaround,” Pandit said in the interview. “There are always bumps in the road. But the real issue to me is look at the five-year track record. It was never going to be a straight line.”

--Bloomberg News--


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Jun 27


Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video


Pershing's Crowley: The case for business transformation

Your practice is changing rapidly. What worked five years ago might not work for the next five years. Pershing's Jim Crowley has some solutions as your business evolves.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

10 funds with largest 3-year outflows

Even well-managed funds that have beaten the S&P 500’s 10.1% average annual gain have watched investors flee.

Wirehouse training programs are back

At one time, major brokerage houses ran large, expensive training programs for thousands of young brokers, and now it looks as if they are about to return to that model.

New military pension rules need financial advisers to step up and serve

Matching defined contribution plan expected to see more money, more need for sound advice.

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print