Citigroup Inc. (C)’s Vikram Pandit, leader of the U.S. bank that took the most government aid in the financial crisis and that has the worst stock performance over the past decade, is ready for a starring role at Davos.
Pandit, 55, is one of six co-chairs of the World Economic Forum’s annual meeting in the Swiss ski resort this week, the first from a U.S. bank since JPMorgan Chase & Co.’s Jamie Dimon in 2008. Pandit leads a delegation that includes top officials of five of the six biggest banks, including Dimon and Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan.
U.S. bankers come to this year’s meeting at a relative advantage to European rivals even as all are struggling with declining revenue, low stock prices and new regulations. The Standard & Poor’s 500 Financials Index dropped 14 percent in the past year, half as much as the 46-company Bloomberg Europe Banks and Financial Services Index. (BEBANKS) European lenders are facing higher borrowing costs and capital shortages as the future of the region’s single currency comes under threat.
“U.S. financial institutions and banks have improved their position relative to two or three years ago,” said Gary Parr, a New York-based vice chairman of investment bank Lazard Ltd. (LAZ) who specializes in advising financial companies and will be attending the conference for the second time. European banks “are in the midst of the sale of portfolios, assets and businesses that could last at least a couple of years.”
Banks in Western Europe announced more than 130,000 job cuts last year, more than twice as many as firms in North America, according to data compiled by Bloomberg. They have vowed to trim at least 950 billion euros ($1.2 trillion) from their balance sheets over the next two years and are seeking to raise an additional 114.7 billion euros of core capital by June to meet regulators’ demands.
European lenders are more exposed than their U.S. counterparts to losses on bonds issued by the Greek government. Portugal’s credit rating was lowered to junk this month by S&P, which also stripped the AAA ratings from France and Austria and downgraded the debt of Spain and Italy.
Growth in the U.S. is outstripping that of the 17-nation euro region, aiding banks. U.S. gross domestic product probably grew 3 percent in the fourth quarter, according to the median forecast of 76 economists surveyed by Bloomberg. The International Monetary Fund said today that the euro area may enter a “mild recession” this year and contract 0.5 percent, compared with 1.8 percent growth in the U.S. and 3.3 percent for the global economy.
“The U.S. banks are still coming back from credit losses, but they’ve gone through the structural rebuilding,” said Peter Hahn, a finance professor at London’s Cass Business School and a former managing director at Citigroup. “They’re not as exposed to the restructuring of Europe, and the economy is sounder in the U.S.”
While U.S. firms also are trying to conserve capital to meet regulatory targets, they may be in a position to win or buy more business from Europe. JPMorgan’s Dimon, 55, said Jan. 13 that his bank, the largest in the U.S. by assets, bought about $5 billion in European loans or conduits in the fourth quarter.
“Eventually there will be some people exiting some of those things, and those who remain will probably pick up a little share because of that,” Dimon said on a conference call about his bank’s record 2011 earnings. He declined an interview request through Joe Evangelisti, a spokesman in New York.
Some European lenders are scaling back in Asia, providing opportunities for U.S. banks that remain wary of plunging into Europe, said Matthew Czepliewicz, a London-based analyst at Collins Stewart Hawkpoint Plc who recommends buying shares of Goldman Sachs Group Inc. (GS) and Morgan Stanley. (MS)
“The earliest evidence we’re seeing of gains in market share is in Asia,” he said. “U.S. banks look at Europe and see better opportunities for them in the U.S. and Asia. They’re a little wary of Europe.”
James Gorman, 53, chairman and CEO of Morgan Stanley, the sixth-biggest U.S. bank by assets, will attend the annual meeting for the first time, having succeeded Davos regular John Mack in his chairman role. Lloyd C. Blankfein, 57, Goldman Sachs’s chairman and CEO, is skipping the meeting for the fourth consecutive year, sending deputies including President and Chief Operating Officer Gary D. Cohn, 51, and Vice Chairman J. Michael Evans, 54. Both banks are based in New York, and all of the executives declined interview requests.
‘Cure or Curse’
Citigroup’s Pandit, who refers to the benefits of his bank’s “globality,” will speak on two panels at this year’s annual meeting: a Jan. 25 discussion about the reshaping of the “global financial system” and a televised session on Jan. 29 in which the meeting’s co-chairs describe the “emerging issues for 2012,” according to the program. Last year, Pandit confined his activities to off-the-record events such as a lunch discussion about providing financial services to the poor.
As a co-chair, Pandit is expected to stay for the five days of the meeting and participate in more public events than most other CEOs who attend, said Kevin Steinberg, chief operating officer of the forum in the U.S. Co-chairs help select subjects for discussion at the conference, he said.
This year’s agenda also includes sessions on whether big banks are a “cure or curse for the global economy” and the future of the financial system.
Co-chairs typically are selected from among organizations that have attended in the past and with an eye toward geographic, industry and gender diversity, Steinberg said.
“We want to have some U.S. representation,” he said, noting that Pandit and Facebook Inc. Chief Operating Officer Sheryl Sandberg are co-chairs from the U.S. this year. “Some years there will be a U.S. financial institution, and some years there won’t be.”
Citigroup reported fourth-quarter results on Jan. 17 that missed analysts’ estimates, sparking an 8.2 percent drop in the stock price on investor concern that expenses aren’t being reined in enough. Net income for the full year rose 6.4 percent to $11.3 billion as fewer borrowers defaulted. Two days later the New York-based company reported that Pandit was awarded $3.7 million in stock for his 2011 performance.
Pandit declined a request for an interview, said Shannon Bell, a spokeswoman for the bank in New York. The company’s 200th anniversary this year is a “perfect time” for Pandit to serve as a co-chair in Davos, she said.
Some of Pandit’s critics at home question whether he should take a bigger role at Davos given his bank’s underperformance. Shares in the lender, which received a $45 billion government bailout during the financial crisis, have plunged 94 percent in the past decade, the most of the 24 companies in the KBW Bank Index (BKX), and 91 percent since Pandit became CEO in 2007.
“He should be spending more time on running his company better,” said Mike Mayo, an analyst with Credit Agricole Securities in New York who has an “underperform” rating on Citigroup’s stock. “What kind of signal does that send that the bank that was the worst-performing in our country over the last decade and whose stock price is still down significantly since he took over is the ambassador for our financial industry?”
Bank of America, the second-biggest U.S. bank, is grappling with costs stemming from lending practices that led to the housing market’s collapse. The Charlotte, North Carolina-based company, which acquired subprime lender Countrywide Financial Corp. in 2008, plunged 58 percent last year as refunds and settlements tied to faulty mortgages mounted.
CEO Moynihan will join Carlyle Group LP co-founder David Rubenstein on a panel to discuss whether capitalism is failing society. Moynihan, 52, also turned down an interview request through Larry DiRita, a spokesman for the bank.
UniCredit SpA (UCG), Italy’s biggest bank, whose shares fell 59 percent last year, said none of its bankers are attending the meeting after CEO Federico Ghizzoni, 56, turned down an invitation. UniCredit, based in Milan, will complete a 7.5 billion-euro rights offer during the Davos conference, a sale that earlier this month sent the stock to the lowest since 1988.
Royal Bank of Scotland Plc, the U.K. government-controlled bank, is sending two executives, after telling investors this month that it’s cutting 4,800 jobs and planning to sell or close its cash-equities, merger-advice, corporate broking and equity capital markets units.
Baudouin Prot, chairman of BNP Paribas SA (BNP), France’s biggest lender, will discuss the future of the euro region in a panel discussion about what is driving decisions. For Prot, 60, the immediate future is a period of contraction as the lender cuts jobs and sells assets, in part to scale back businesses that have struggled to raise financing from U.S. money markets.
‘Closer to Home’
Deutsche Bank AG (DBK), whose CEO Josef Ackermann was a co-chair of the 2010 meeting, is seeking to sell its asset-management units as it tries to bolster capital by 3.2 billion euros. Ackermann, 63, will be in Davos this year, his last appearance before he steps down as head of the Frankfurt-based bank.
“Generally, we’ll see a retreat within banking,” said Hahn, the Cass Business School professor. “Money is staying closer to home, and in some ways that is accelerating.”
That’s not the case at Rothschild, the family-controlled banking dynasty led by Paris-based David de Rothschild, 69. It’s sending North America CEOJames Lawrence to Davos for the first time to help emphasize the firm’s deal-making capabilities outside Europe.
Lawrence will attend in addition to Francois Henrot, the Paris-based chairman of Rothschild’s global financial-advisory business.
“We would like to portray ourselves as a global bank,” Lawrence said in a phone interview. “Sure we have our roots in Frankfurt in 1780, and sure we have our biggest offices in Paris and London, but one of the reasons I’m going is to make it clear that we’ve got a very strong presence in the U.S.”
The best-performing U.S. banks won’t be making the trek to Davos. Wells Fargo & Co., the biggest U.S. bank by market value, has never sent executives to the conference, according to Mary Eshet, a spokeswoman for the San Francisco-based lender. She said the firm’s focus has been elsewhere, such as completing the integration with Charlotte-based Wachovia Corp., which it acquired in 2008 for $12.7 billion.
Dick Evans, chairman and CEO of San Antonio, Texas-based Cullen/Frost Bankers Inc. (CFR), has led the firm to the second-best performance in the KBW Bank Index over the past five years and took no money from the government during the financial crisis. He isn’t sure he’d have much to add in Davos, though his company has returned 26 percent to shareholders since January 2008, compared with Pandit’s negative 88 percent, according to data compiled by Bloomberg.
“An old Texas country banker, I don’t know, they probably wouldn’t want to hear from me,” Evans, 65, said in an interview. “I’d talk about culture and great people and stuff like that. They like to talk about arithmetic.”
Credit Agricole’s Mayo said he doesn’t understand why Pandit gets an audience in Davos, comparing him with an actor who was ejected from a flight last month because, the airline said, he was rude to the crew.
“Asking Vikram Pandit about the crisis in capitalism is like asking Alec Baldwin about airplane etiquette,” Mayo said.