Former Citigroup Inc. (C) Chairman Richard Parsons, who in 2011 awarded Chief Executive Officer Vikram Pandit a retention package valued at about $40 million, said the CEO’s departure last week was “appropriate.”
“You need seasoned, honed managers who can cause a 250,000, 300,000-personnel organization to march” with direction, Parsons said in a weekend interview at his Tuscan vineyard in Montalcino, Italy. “Vikram will tell you, ‘That’s not my bag.’”
Pandit, 55, produced “every good idea that we had” to prevent Citigroup’s collapse during the financial crisis, Parsons said. New CEO Michael Corbat, 52, who previously ran the Citi Holdings unit, is well-equipped to lead the firm as it cuts costs and sells unwanted assets, the ex-chairman said.
“Mike Corbat, who I knew back in the day when he ran the Holdings operation, is just that kind of man,” said Parsons, 64, adding that he was “somewhat” surprised by the timing of Pandit’s exit. “The transition and change was, in the long term, not inevitable but appropriate.”
Parsons oversaw Pandit’s performance since 2007 until stepping down from the board six months ago and was a member of the compensation committee that awarded the CEO’s retention package in May 2011. The deal was designed to keep Pandit at the New York-based bank through cash and stock awards that would pay out over multiple years.
“The long-term, multiyear, performance-based structure of this award is designed to retain Vikram as our CEO and reward him for future performance benefiting the company and our shareholders,” Parsons said in a filing announcing the deal. “Under his leadership, the management team has navigated Citi through the crisis, returned Citi to profitability and is executing a strategy for sustainable growth.”
Shareholders rejected Pandit’s compensation plan in a non- binding vote at the annual meeting in April (APR), when fellow compensation committee member Michael O’Neill succeeded Parsons as board chairman.
O’Neill, 65, led the directors who pushed out Pandit after concluding his mismanagement of operations damaged the bank’s credibility, a person familiar with the matter said last week.
O’Neill and Shannon Bell, a Citigroup spokeswoman, declined to comment on Parsons’s remarks. Pandit didn’t respond to phone and e-mail messages yesterday.
Saudi billionaire Prince Alwaleed bin Talal, who personally owned 218 million Citibank shares as of November 2008, praised Pandit’s handling of the financial crisis while CEO, saying he helped position the bank for further growth.
“With the economic crisis many companies like HSBC (HSBA), Barclays (BARC) and Standard Chartered (STAN) shrank and went back to their roots,” Alwaleed said today at a conference in Dubai. “Citigroup never blinked. It’s the only global bank at the moment and really the potential is there,” he said, adding Pandit did a “good” job as CEO.
Pandit received about $56 million from Citigroup in annual compensation packages separate from the retention agreement, including some stock awards that have declined in value. The lender paid Pandit $165 million when it bought his Old Lane Partners LP hedge fund in 2007 in a deal that led to his becoming CEO.
While “compensation is a challenge across the corporate spectrum,” the market remains the best way of determining pay on Wall Street, said Parsons, who also helped to award Pandit’s 2011 pay plan of about $15 million.
The former CEO could forfeit almost $33 million in cash and stock tied to the retention deal because of his exit, according to the terms of the arrangement and data compiled by Bloomberg.
“The system has sort of spun off its axis but how to fix it I don’t know, because I don’t know what the substitute is for the market,” Parsons said. “Do we go out and find the ultimate wise person and say, ‘You run the system?’ Do we turn it over to politicians, do we turn it over to the unions, do we formulate a bunch of hard-and-fast set of rules?”
Corbat and O’Neill will have to “simplify instructions” and decide what kinds of banking Citigroup should do around the world, Parsons said. The firm, under Pandit and Parsons, pushed into emerging markets in Latin America and Asia as economic growth slowed in the U.S. and Europe. The company operates in more than 100 countries.
“The old notion that we do this very well and therefore we’re going to do it all over the world, well, it may not be appropriate for every place in the world,” Parsons said. “It may only be appropriate for certain markets where there’s a current need and you can make good money.”
Parsons, visiting his Il Palazzone vineyard to inaugurate a cellar, said regulatory pressures will still be a challenge for the new management team.
“Externally, it’s still going to be tough,” said Parsons, sipping a glass of his 2004 Brunello Riserva as he sat outside a stone house set on an ancient trail from Frankfurt to Rome. “To some extent, the regulatory/political community is still almost at war with the big banks.”
Nelson Rockefeller introduced Parsons to fine wines. He plans to turn the hobby into a profitable business by doubling production of red wines that retail in the U.S. for as much as $130 a bottle.
The former Citigroup chairman became a director of Bermuda- based investment bank Lazard Ltd. (LAZ) in June and is a board member of Estee Lauder Cos. (EL), where he is chairman of the compensation committee. He’s also a senior adviser to Providence Equity Partners Inc., which specializes in buying media and telecommunications businesses.
Parsons joined Citigroup’s board in 1996, working with Pandit’s predecessors Sanford I. “Sandy” Weill and Charles O. “Chuck” Prince as the lender became the world’s biggest bank. A dozen years later, U.S. taxpayers provided a $45 billion bailout that was later repaid.
“The regulatory landscape is changing all the time,” Parsons said. “It’s very hard to run a big organization with no certainty of what tomorrow brings.”