Citigroup Inc. (C) Chief Executive Officer Vikram Pandit, who took a $1 salary after his bank received the most taxpayer assistance of any U.S. lender, is poised to collect $80 million from other payments and awards that may eventually total more than $200 million.
Pandit, 54, will get the $80 million from Citigroup’s purchase of his Old Lane Partners LP hedge fund tomorrow, according to regulatory filings. The deal brought him to the lender in July 2007. JPMorgan Chase & Co. (JPM), which remained profitable through the financial crisis, has disclosed about $90 million in awards for CEO Jamie Dimon since 2007.
“Pandit, his $1 pay notwithstanding, cannot be considered modestly paid,” said Graef Crystal, a compensation expert and Bloomberg News consultant based in Las Vegas. “Taxpayers saved this bank, and he’s getting a bundle while shareholders are getting shortchanged on the stock price.”
Pandit’s $80 million is the last of the $165 million New York-based Citigroup agreed to pay for his share of Old Lane four years ago. The bank has since awarded him compensation, including stock and options, worth about $63 million when he received them. This includes a $1.75 million salary he got in January, replacing the $1 he told Congress he would take in February 2009 until the bank turned a profit. In May, he entered into a company profit-sharing plan which will give him an additional $25 million if the company meets analysts’ estimates.
Citigroup Shares Fall
The Old Lane payment also caps the end of six months in which Citigroup shares have fallen 12 percent amid investor concern that bank earnings will decline, placing the lender 13th on the 24-company KBW Bank Index. (BKX) The shares have fallen about 92 percent since the Old Lane deal closed and 87 percent since Dec. 11, 2007, the day Pandit was appointed CEO.
“It is apples to oranges to compare proceeds from the sale of a business to compensation,” Shannon Bell, a spokeswoman for Citigroup, said in an e-mailed statement.
His own stake has suffered on his watch. Pandit’s shares and options are currently worth about $26 million, most of which is linked to awards the bank gave him in May of this year, according to an analysis by Crystal. Share awards from 2008 have lost most of their value, Crystal said.
One period of Pandit’s tenure that Crystal studied was this year through May 17, when Citigroup’s compensation committee -- chaired by former Alcoa Inc. CEO Alain Belda -- awarded Pandit $10 million in deferred stock, entry to a company profit-sharing plan and stock options that Crystal valued at more than $10 million. Citigroup shares fell 12 percent during the period. The Standard & Poor’s 500 Index, which tracks the performance of 500 U.S. stocks, gained 5.7 percent.
“This raises the interesting question as to why the comp committee decided the war was over and it was time to stage a victory celebration,” Crystal said.
JPMorgan has awarded Dimon, 55, about $90 million since 2007 including stock and options, according to filings, which don’t outline amounts for future awards. New York-based JPMorgan’s shares have declined 17 percent since the day Pandit sold Old Lane to Citigroup, making the firm the fifth-best performer on the KBW Bank Index during the period. Citigroup was the worst-performing.
The U.S. Treasury Department provided a $25 billion bailout to JPMorgan in 2008. The bank, the second-largest in the U.S., repaid the funds in 2009 with a $1.75 billion profit for taxpayers. The lender’s profit for 2011 may be $20.8 billion, according to a Bloomberg survey of 13 analysts.
Five Profitable Quarters
Pandit replaced CEO Charles “Chuck” Prince, 61, who resigned as the bank faced billions of dollars in losses linked to subprime mortgages and related securities. Under Pandit, the bank posted $29.3 billion in losses in 2008 and 2009. The U.S. Treasury bailed out the company with a $45 billion cash injection and a guarantee of more than $300 billion of its riskiest assets.
Some analysts credit Pandit with steering the third-largest U.S. bank toward five straight profitable quarters since then as he boosted lending in emerging markets in Asia and Latin America and shrank the amount of toxic assets the company was carrying on its balance sheet.
The strategy enabled Pandit to pay back the Treasury’s bailout funds and deliver a profit to taxpayers of about $12 billion. The firm may post a $3.1 billion profit for the second quarter and is on course to make a $12.6 billion profit for the year, according to a Bloomberg survey of 12 analysts.
Shareholders may benefit. Pandit, who reinstated a 1-cent dividend in May, could introduce an 80-cent payout in 2012, about $2 billion in total, and buy back up to $4 billion of stock, according to London-based Richard Staite, an analyst with Atlantic Equities LLC, who rates the shares “overweight.”
“If Dick Fuld had been able to pull it off, how much would they have wanted to reward him?” said David Knutson, a Legal & General Investment Management credit analyst, referring to the former CEO of Lehman Brothers Holdings Inc., which collapsed in 2008. Pandit “has brought the bank back from the brink.”
Pandit, who’s from Nagpur, India, has almost doubled the firm’s Tier 1 capital ratio, a measure of financial strength, to 13.26 percent at the end of the first quarter from 7.12 percent in December 2007. Customer deposits have grown to $865.8 billion, or 49 percent of total liabilities, from $738.5 billion, or 39 percent, in March 2007, according to Bloomberg data.
Selling Troubled Assets
Citigroup has sold about $300 billion of troubled assets in Citi Holdings, the unit Pandit formed to house and offload the bank’s most distressed businesses and investments. The division still had $337 billion in assets at the end of March, much of it tied to U.S. mortgages, store-branded credit cards and securities.
If Pandit can wind down and sell the rest, regulators may consider the lender less risky than JPMorgan and Bank of America Corp. (BAC), according to Charles Peabody, an analyst with New York- based Portales Partners LLC.
“$80 million is a drop in the bucket relative to what he’ll get going forward if he turns this thing around,” Peabody said in a phone interview.
Citi Holdings is still a concern for investors as they try to determine the assets’ values during a period of global uncertainty, according to Peabody, who changed his rating on Citigroup shares to “hold” from “buy” in January.
“If asset prices are deteriorating, then it gets tougher to sell those asset prices at par,” said Peabody. “If they can’t unload these assets and they have to raise more common equity at dilutive prices, or if they have to take hits on these assets, then book value would go down in absolute dollar terms.”
This has dragged down Citigroup’s share price more than the 7.5 percent decline registered by the KBW Bank Index this year, Peabody said. Citigroup is among Wall Street lenders that have had their profit estimates chopped by analysts wary of declining revenue and costs tied to the Dodd-Frank regulatory act and capital rules proposed by the Basel Committee on Banking Supervision. This could pare Citigroup’s gains from emerging markets, according to David Trone, a JMP Securities analyst.
“While we concede the international side of the story is attractive, in our view, near-term risks associated with legal/regulatory issues (Basel III, mortgage woes and Dodd- Frank) outweigh any potential upside,” Trone wrote about Citigroup in a note to investors last week.
Pandit introduced a reverse stock split in May, converting every 10 common shares into one new share to attract more institutional investors. Shares are down 7.9 percent since then and the tactic was a failure, according to Richard Bove, an analyst at Rochdale Securities LLC in Lutz, Florida.
“It has been my thought from the start that no institution would buy this stock due to the split but retail investors would dump it due to the split,” said Bove, who has a “buy” rating on Citigroup shares. “It was a bad move. Managements should play less stock market and more company operations.”
Investors have also pulled back this year from emerging markets, where Pandit says the company now earns more than half its profit. The MSCI Emerging Markets Index, which tracks the shares of 824 companies in countries such as Brazil, Russia and India, has failed to gain this year after more than doubling during 2009 and 2010.
Citigroup hasn’t fared as well as some global banks. HSBC Holdings Plc has declined 5 percent so far this year, while shares in Standard Chartered Plc have fallen 5.1 percent. Both London-based banks rely on Asia for more than half their profit.
Standard Chartered’s price-to-book ratio, a measure of investors’ expectations, is 1.6, more than double Citigroup’s. The firm has awarded CEO Peter Alexander Sands compensation of $27.7 million since 2007, according to company filings. Standard Chartered may have a $4.77 billion profit this year, according to a Bloomberg survey of 28 analysts, which would be its eighth successive record annual profit.
Pandit isn’t the only Citigroup executive who has been waiting four years for the last round of Old Lane payouts. Chief Operating Officer John Havens will also get $80 million, while Chief Risk Officer Brian Leach will get $8.6 million, filings show.
The three left Morgan Stanley in 2005 after a dispute with then-CEO Philip Purcell. They started Old Lane in 2006 with $3.7 billion in assets, the second-largest start by a hedge fund that year. Guru Ramakrishnan, another ex-Morgan Stanley executive, was among the Old Lane founders.
Old Lane Purchase
Citigroup bought the 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, while Havens, Leach and Ramakrishnan received senior positions within the firm.
Pandit received $165 million from the deal on a “pretax basis” and reinvested $100.3 million into the hedge fund, where it was supposed to remain for four years, according to filings. The bank then 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 bank said that $80 million of Pandit’s cash would remain locked up until July 2011 in an account at Citi Private Bank, the unit that says it caters to one-third of the world’s billionaires.
Citigroup Vice Chairman Lewis Kaden said in an October 2007 interview that the deal was really a way to recruit Pandit and his Old Lane colleagues.
“You start to see the quality of the team,” Kaden said. “If it succeeds, it was a bargain.”
To contact the reporters on this story: Donal Griffin in New York at firstname.lastname@example.org;