Former Citigroup Inc. (C) Chief Executive Officer Vikram Pandit is buying a stake in India’s JM Financial Ltd. and taking a leadership role as it seeks to set up a bank, the Mumbai-based company said.
Pandit is among a small group of investors who will share a 3 percent equity stake in JM Financial, the investment firm said yesterday in a statement to stock exchanges. The company said it’s applying for a banking license and will nominate Pandit as non-executive chairman. He’ll also help JM Financial create a fund to buy distressed assets and expand its lending and financing businesses.
The deal is Pandit’s first public investment since Citigroup directors ousted him as CEO in October. The board concluded that Pandit, 56, a native of Nagpur, India, had mismanaged the bank’s operations, a person familiar with the matter said at the time. Pandit had staked Citigroup’s turnaround in part on boosting profit from emerging markets including India.
“I continue to believe in the long-term growth prospects of India,” Pandit said in the statement. “JM Financial can provide the banking and financial services that the country needs.”
JM Financial rose 13 percent to 26.70 rupees at the close of trading in Mumbai today, after rising 16 percent yesterday. The stock had slumped 16 percent this year through May 11. The firm’s interests include investment banking, trading and asset management, according to its website.
Pandit agreed to help expand JM Financial’s lending and financing businesses in a transaction the company valued at $100 million, according to the statement. The deal also calls for the creation of a $100 million distressed-asset fund set up by JM Financial and Pandit.
Pandit and Hari Aiyar will jointly take a 3 percent equity stake in JM Financial through an issuance of warrants, according to the statement. Aiyar and Pandit worked together at Morgan Stanley (MS) before leaving to found hedge-fund firm Old Lane Partners LP, according to a 2007 statement. Aiyar was chairman of Old Lane India, the hedge fund’s subsidiary in that country, according to another statement from that year.
Citigroup later bought Old Lane for $800 million. That deal led to Pandit becoming CEO of the bank as the global credit crisis pushed the company toward a $45 billion U.S. bailout, which was later repaid. Pandit shut Old Lane early in his tenure and the bank took a $202 million writedown.
Aiyar is part of the leadership team at Napier Park Global Capital, an investment firm with roots to the Old Lane purchase. Citigroup spun out Napier Park earlier this year under a deal that granted 75 percent of the firm to executives for free, people familiar with the matter said at the time. Pandit oversaw the creation of the spinout before his ouster. Aiyar’s responsibilities at Napier Park include India infrastructure strategies, according to the firm’s website.
JM Financial (JM) is run by Nimesh Kampani, whom Pandit has known for more than two decades, according to the statement. The firm was involved in a joint venture with New York-based Morgan Stanley until 2007. Pandit worked for Morgan Stanley for about two decades before leaving in 2005 to set up Old Lane.
The ties between Pandit and JM Financial continued after he exited Morgan Stanley. In 2006, Old Lane and JM Financial set up a corporate private-equity fund, with Old Lane as its lead investor and co-sponsor, according to a statement on JM Financial’s website.
JM Financial is pursuing a banking license as India’s central bank eases rules on new permits. Companies with a 10-year track record and “sound credentials” can apply by July 1, the Reserve Bank of India said in a Feb. 22 statement. Foreign ownership will be capped at 49 percent for the first five years, and lenders are required to set up 25 percent of their branches in villages with less than 10,000 people.
In seeking a banking license, Pandit and JM Financial will compete with companies including one led by billionaire Kumar Mangalam Birla and Mahindra & Mahindra Financial Services Ltd. (MMFS), a unit of India’s largest tractor maker.
“Pandit entering the race for a permit elevates the game to a new level,” said Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities. “Pandit’s name and experience will weigh in favor of JM’s banking ambition.”
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