Vikram Pandit, the chief executive officer of Citi, abruptly resigned on Tuesday, effective immediately. Michael Corbat, who ran Citi’s business in Europe, the Middle East, and Africa was named as his replacement.
At massive companies like this, top executives don’t typically resign with little notice. Seventy-six days ago, The Wall Street Journal reported that Pandit planned to stay at Citi for several years, and that he “has the full support of the board.” By all appearances, this was a firing—or a coup—not a long-planned retirement.
Pandit, a finance Ph.D. turned hedge-fund manager, was something of a surprise choice to head Citi when he replaced Chuck Prince as CEO in late 2007. He led Citi as it cratered during the financial crisis—largely due to the absurd amount of risky loans assumed by the bank across its businesses under the prior regime. By late 2008, Citi was essentially dead, kept alive only by extraordinary help from the Treasury Department.
Pandit, who had joined Citi when it acquired his hedge-fund business, managed to steer Citi back to a modicum of health. The bank rationalized, cut costs, hived off poorly performing assets into a new unit, Citi Holdings, and proceeded to sell them off in Wall Street’s longest-running garage sale. As the U.S. economy recovered, and as the global economy continued to grow, Citi returned to profitability. But Citi was a shrunken, chastened company. And Pandit never ruled with the imperium that used to come with this office.
In a release announcing Pandit’s departure, Citi gave no details about what had precipitated the move, leaving analysts and observers to speculate. Reached by phone, the bank said it had no further comment.
It could be that Pandit is leaving because he has been weakened by poor leadership and humbling missteps. In March the Federal Reserve rebuffed Citi’s plans to increase its dividend, saying the bank didn’t display sufficient financial strength. In April, in a rare move, investors voted down Pandit’s $15 million pay package. That’s an embarrassing pair of black eyes for any CEO to receive, and it left him vulnerable to internal rivals.
The Wall Street Journal reported that Pandit’s exit came following a disagreement over strategy and performance at the bank, especially in its institutional clients group. That seems unlikely. If there was a dispute that was heated enough to cause Pandit’s exit, surely Citigroup executives and employees would have heard about it—yet people who work at the bank were reportedly shocked by the news. The Journal reported that London executives saw the news first on their Bloomberg terminals, “well before the bank’s internal memo was released.”
There are other potential explanations. Charlie Gasparino, the Fox business news correspondent Tweeted that Pandit’s poor handling of the decision to merge the bank’s Smith Barney brokerage unit with Morgan Stanley’s brokerage unit may have cut short Pandit’s tenure. When it reported earnings on Monday, Citi said it took a $4.7 billion pre-tax loss because it had to sharply write down the value of its stake in the Morgan Stanley Smith Barney joint venture.
This was a firing,
or a coup—not a long-planned
Perhaps there is more to come in the long-running investigation into the way banks fixed the interest rate known as Libor in London. “My wild guess is it had something to do with Libor,” Dick Bove, the veteran banking analyst, told CNBC. That sounds plausible. Investigations have revealed that banks intentionally fiddled with the important benchmark interest rate, which was presumed to be set by market activity. The Libor scandal has already claimed the head of one large bank, Robert Diamond of Barclay’s. In July, as Steven Gandel of Fortune noted, “a number of studies have shown that when it comes to lying about the key bank rate, Barclays was far from the worst offender. That title may belong to Citi.”
And of course, on Twitter, the red-hot ground zero of irresponsible, undocumented speculation, comes other possible (and absurd) reasons: the resignation paves the way for Treasury Secretary Tim Geithner to take the post. (hat tip: @hblodget, @mark _dow); the resignation paves the way for Pandit to take Geithner’s job (hat tip: @trader lh).
One last bit of speculation, from your humble authors. Pandit, an engineering major and a Ph.D. in finance, had spent his career managing money and a small number of other traders. He was ill suited and ill prepared to run one of the world’s largest financial institutions, employers, and consumer brands. Pandit was thrust into the role only because Citi’s existing management team was so thoroughly discredited before the financial crisis started in earnest. Four years after the depths of the crisis, perhaps Citi’s board realizes it needs a professional, seasoned manager to run the company.