Oct. 16 (Bloomberg) -- It seems that the board of Citigroup Inc. came to the same conclusion that many in the financial world had settled on long ago: Vikram Pandit was never the right man for the top job.
Pandit, who had been Citigroup’s chief executive officer since December 2007, was forced by the board to resign along with President and Chief Operating Officer John Havens, according to the Wall Street Journal. Pandit was replaced by Michael Corbat, who had been CEO of Citigroup’s Europe, Middle East and Africa.
Whatever his strengths or weaknesses, here is the detail that’s important to remember: Pandit was a hedge-fund guy given the task of reviving what is, in essence, a commercial and consumer bank.
His ascent to the top of Citigroup was by default as much as anything. After the ouster of Charles Prince in November 2007, the leadership void at Citigroup was enormous. Former Citigroup CEO Sanford Weill was gone, stripped of power after the tainted research-analyst scandals of the early 2000s. Ex-Goldman boss and Treasury Secretary Robert Rubin, who never had operational responsibilities at Citigroup, was too closely tied to the bank’s disastrous plunge into the subprime mortgage-securities business.
That left Pandit, who arrived at Citigroup in early 2007 after the bank bought a hedge fund he was running with Havens. Before that, he had managed Morgan Stanley’s institutional securities business, where one of his tasks was offering brokerage services to the rapidly expanding hedge-fund industry.
To be fair, Pandit wasn’t given an easy task and any strategic vision he may have had was soon overwhelmed by the 2008 financial crisis. In less than a year after he was handed the top job, Citigroup was on the verge of collapse. The bank was so sick that regulators nixed its plan to buy failing Wachovia, which was awarded to Wells Fargo & Co.
Citigroup needed three rounds of federal aid to survive. It still ranks among the weakest of the U.S.’s megabanks based on standard benchmarks such as return on equity (6.5 percent) and return on assets (0.6 percent). The shares have been a laggard as well after the company did a 1-for-10 reverse split in 2011 because they had fallen to penny-stock territory. Since then, the shares are down 20 percent even as the broader stock market has gained 7 percent.
More telling, the shares trade at just a bit more than half of Citigroup’s book value. What this means is that investors doubt that Citigroup’s assets are worth what the bank says they are.
Earlier this year Citigroup was one of just four U.S. banks to fail an important part of the Federal Reserve’s stress tests, which are designed to replicate how a bank would perform in an economic collapse.
Even today, Citigroup struggles to turn in consistent financial results. Yesterday, the company reported net income of $468 million, a number that was muddied by one-time items. That was actually better than Wall Street analysts expected. They were counting on a loss.
(James Greiff is a member of Bloomberg View’s editorial board.)
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