Citigroup CEO quits, stuns Wall Street
VIKRAM Pandit abruptly stepped down as CEO of Citigroup yesterday, surprising Wall Street, after steering the bank through the 2008 financial crisis and the choppy years that followed.
Pandit's replacement, effective immediately, is Michael Corbat, who had been CEO of Citigroup's Europe, Middle East and Africa division, the bank said. Corbat has worked at Citi and its predecessors since he graduated from Harvard in 1983, it said.
Pandit will also relinquish his seat on Citi's board of directors. A second top executive also resigned as part of the shake-up: President and Chief Operating Officer John Havens, who also served as CEO of Citi's Institutional Client Group.
The news shocked Wall Street, a day after the bank easily beat analyst expectations for its quarterly earnings. Investors sent the stock price to its highest level since early April.
Citigroup offered no explanation for the sudden departures.
Pandit is credited with slimming the bank by selling businesses, removing it from government ownership after a bailout in 2008 and righting its balance sheet after billions in losses on bad mortgage investments made before he took the helm.
Today, Citi is America's third-largest bank, with US$1.9 trillion ($171 trillion) in assets, according to the Federal Reserve. It trails only JPMorgan Chase, with US$2.3 trillion, and Bank of America, with US$2.1 trillion.
But Pandit's massive pay packages have raised the ire of investors. Some in government believed the bank was too slow to address its problems as they emerged in the months before the crisis caught fire in September 2008.
In March 2009, as the crisis raged, President Barack Obama ordered the Treasury Department to consider breaking up Citigroup and removing its executives, according to a behind-the-scenes book about the crisis published last year by journalist Ron Suskind.
Treasury Secretary Timothy Geithner ignored Obama's request, according to Suskind's account. Geithner and the White House have disputed his version of events.
Pandit had another opponent in Sheila Bair, an influential bank regulator who ran the Federal Deposit Insurance Corp. during the crisis. Bair wanted the government to fire Pandit after it extended billions in bailouts and guarantees to his company. Geithner disagreed, and Pandit kept his job.
In an interview with CNBC yesterday after Pandit's departure was announced, Bair said Citigroup has lacked "a clear strategic direction and focus" under his watch, and said shareholders are unhappy.
She said the bank would benefit from a CEO with commercial banking experience, as opposed to Pandit's background in investment banking, and that the move would be beneficial for shareholders.
Daniel Alpert, managing partner at the New York investment bank Westwood Capital Partners LLC, said Pandit had done "pretty much all he can do to turn the bank around".
He said it will be hard for big banks to boost their share prices because of intense pressure from regulators to simplify their businesses.
"There is some meaning to quit while you're ahead," Alpert said, noting that it's harder for executives to win massive pay packages when a company's stock is flat-lining.
In April, Citigroup shareholders rejected the bank's proposed pay deals for executives, including Pandit. It was the first time shareholders dinged a Wall Street bank under a provision of the 2010 financial overhaul law that gives them a non-binding vote on executive pay.
Fifty-five per cent of the shareholders objected to deals including the US$15 million that Pandit received last year, in addition to US$10 million in retention pay. He had accepted a token US$1 in compensation in 2010.
Shareholders were frustrated in part because the stock had plunged 44 per cent in 2011, after adjusting for a reverse stock split. So far in 2012, it has regained about half of its 2011 losses.
The retention pay was to vest in 2013, as an incentive for Pandit to stay on as CEO. A bank spokeswoman said he would not receive any of that money.
In March, Citigroup surprised observers by failing its stress test, the Federal Reserve's annual check-up for banks. The Fed said Citi, unlike any of its peers, did not have enough capital to raise its stock dividend and still withstand a financial crisis worse than 2008.
Pandit, 55, said in a statement yesterday that "now is the right time for someone else to take the helm at Citigroup" after the bank "emerged from the financial crisis as a strong institution".
Both Pandit and Corbat sent memos to Citi's 262,000 employees early yesterday. Pandit did not say why he was leaving, but gave the impression that he felt he had completed a mission.
"There is nothing better than our third quarter earnings announcement to demonstrate definitively that we have turned this company around," he wrote.
Corbat said he was humbled and excited, calling himself "a true believer in this company". He praised Pandit for leading Citi "back to its roots as a bank".
Corbat also noted the challenges ahead — "regulatory, legislative and economic changes around the world present headwinds as we redefine our relationships with all of our stakeholders".
Pandit joined Citigroup in 2007 when the hedge fund he founded was acquired by the bank. He quickly rose to CEO in December 2007. Earlier, he had ascended to head of investment banking at Morgan Stanley before leaving in 2005 to form the hedge fund.
A native of India, Pandit attended Columbia University at 16 and completed a bachelor's degree in three years. He earned a doctorate in finance in 1986.
Pandit faced harsh criticism after Citigroup took US$45 billion in government bailout money in the 2008 credit crisis. It is widely believed that other, stronger banks were forced to take billions in bailout money to divert attention from Citigroup, whose financial situation was more precarious.
The US Treasury sold the last of its stake in the company in December 2010.
In October 2011 the company agreed to pay US$285 million to settle civil fraud charges that it misled buyers of a complex mortgage investment just as the housing market was starting to collapse.
The Securities and Exchange Commission said Citigroup bet against the investment in 2007 and made US$160 million in fees and profits. Investors lost millions.
Citigroup neither admitted nor denied the SEC's allegations in the settlement.
Goldman Sachs paid US$550 million to settle similar charges and JPMorgan Chase & Co paid US$153.6 million. All the cases have involved complex investments called collateralised debt obligations. Those are securities that are backed by pools of other assets, such as mortgages.
In December 2011 Pandit announced the company would eliminate 4,500 jobs to cut costs. The cuts represented about 1.5 per cent of its global workforce of 267,000. When he was first hired in 2007, the company had 375,000 employees.
A naturalised citizen, Pandit lives in New York with his wife and two children.