U.S. Treasury Secretary Timothy F. Geithner resisted Sheila Bair’s efforts to replace Vikram Pandit as chief executive officer of Citigroup Inc. in early 2009, according to her memoir of the financial crisis.
Pandit was “handpicked” to be CEO by former Citigroup Chairman and ex-Treasury Secretary Robert Rubin, who is Geithner’s “mentor and hero,” Bair wrote in “Bull by the Horns.” That bond was probably the reason why Geithner warded off her attempts to replace Pandit, she said.
“I assumed that was because of his relationship with Bob Rubin,” Bair said today in an interview following an appearance on Bloomberg Television. “Vikram had gotten his job with Bob Rubin’s support. There was a close working relationship there that troubled me.”
Bair, 58, who stepped down last year as chairman of the Federal Deposit Insurance Corp., sought to replace Pandit with Jerry Grundhofer, a Citigroup (C) director and ex-CEO of U.S. Bancorp (USB), according to the book.
“I had been pushing hard for Grundhofer to replace Pandit, and I believe Jerry would have stepped in if Tim had asked him to,” Bair wrote. “But Tim would not take decisive action to replace Bob Rubin’s handpicked choice for CEO, Vikram Pandit.”
Her pursuit of Pandit’s ouster came as he worked to repair Citigroup after it took a $45 billion bailout in 2008. Pandit, 55, lacked commercial-banking experience while the company’s management struggled to make decisions, Bair wrote. Geithner, 51, wanted to shield the bank from Bair rather than protecting taxpayers from potential losses at New York-based Citigroup, according to the book.
“Couldn’t we at least bring in an experienced commercial banker to run the place, I asked,” Bair wrote. “Tim resisted, offering a bone instead: that Vikram could hire some more commercial bankers to work for him. I doubted that many senior commercial bankers would be willing to work for Vikram, given his weak reputation, but no one was going to buck Tim.”
Pandit has succeeded in turning the company around since taking over during the financial crisis by paring assets and restoring earnings, Mark Costiglio, a Citigroup spokesman, said in an e-mailed statement.
“Citi has executed a strategy based on returning to the basics of banking and building a culture of responsible finance,” Costiglio said. “Citi has built industry-leading financial strength, reduced its non-core businesses and assets by over $600 billion, and returned to profitability. It is a simpler, smaller, safer and stronger institution than it was five years ago and this record speaks for itself.”
Treasury converted $25 billion of bailout funds into an equity stake in Citigroup in 2009. Taxpayers made a profit of about $12 billion from the rescue as Geithner oversaw the disposal of the shares the following year.
“It should be acknowledged that Treasury did sell those shares at a profit -- a point repeatedly made to defend against critics of Tim’s generous treatment of that institution,” Bair wrote. “Of course, Tim did not know whether Treasury’s investment would pay off at the time, and it still troubles me that he could so readily subordinate the government’s interest to those of private shareholders.”
Bair secured some management changes with help from Federal Reserve Chairman Ben S. Bernanke, according to the book. Grundhofer became head of the board that oversees Citibank NA, the firm’s main banking subsidiary. Edward “Ned” Kelly, the “combative” finance chief, was removed and replaced with John Gerspach, who was respected by FDIC examiners, Bair wrote.
Costiglio, invited to respond on Kelly’s behalf, declined to elaborate beyond Citigroup’s statement.
Grundhofer, 68, left the Citigroup board in June 2011 and became non-executive chairman of the U.S. subsidiary of Madrid- based Banco Santander SA (SAN), Spain’s largest lender. Geithner was head of the Federal Reserve Bank of New York, one of Citigroup’s regulators, before joining President Barack Obama’s Cabinet.
Suzanne Elio, a Treasury spokeswoman, declined to comment on Bair’s assertions about Geithner. Bryan Hurst, a spokesman for Santander’s Philadelphia-based Sovereign Bank unit, didn’t return phone and e-mail messages seeking comment from Grundhofer.
Bair’s 415-page book, released this week by Simon & Schuster Inc., describes how she navigated the global credit crisis that snowballed in 2008 with the emergency sale of Bear Stearns Cos., the collapse of Lehman Brothers Holdings Inc. and the rescue of financial firms including American International Group Inc.
Bair joined Neil Barofsky, the former inspector general of the Troubled Asset Relief Program, in portraying Geithner as being more concerned about the welfare of the biggest banks than that of homeowners. Geithner told him that the administration’s Home Affordable Modification Program was meant to “foam the runway” for lenders, or stretch out foreclosures so that the firms wouldn’t be overwhelmed, Barofsky wrote in his book.
“HAMP was a program designed to look good in a press release, not to fix the housing market,” Bair wrote. Geithner “didn’t seem to care about the political beating the president took on the hundreds of billions of dollars thrown at the big- bank bailouts and AIG (AIG) bonuses, but when it came to homeowners, it was a very different story.”
The government’s main program to prevent foreclosures was overly complicated and doomed to fail because it required too much paperwork and lacked oversight and enough financial incentives, Bair wrote. Geithner dismissed Bair’s housing relief plan and was determined to exclude her from helping administer assistance programs, she wrote.
Bair cringed at Obama’s “wildly inflated” goal of helping 3 million to 4 million borrowers through HAMP, she wrote. The program has resulted in 825,478 permanent modifications since 2009. Large banks were to blame for the results because they had half the response rate of smaller firms, according to a paper released last month by researchers from the Federal Reserve Bank of Chicago and the Office of the Comptroller of the Currency.
Geithner has said he was “deeply offended” by accusations that he has been overly sympathetic to Wall Street. It’s the result of an “urban myth” that he worked for Goldman Sachs Group Inc. (GS) “rather than as a public servant, which is what I’ve done with my life,” Geithner said in a July interview on the “Charlie Rose” show broadcast on PBS and Bloomberg Television.
Geithner said yesterday that he probably won’t write a book after leaving office.
“I’m not really the type to sit alone at a desk and write. It’s not really my thing,” Geithner said in an interview with Rose at the Clinton Global Initiative in New York. “A lot of people are telling my story.”