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Citigroup 5-Year Critic Mayo Says Buy Shares on Pandit Exit

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Oct. 17 (Bloomberg) -- Michael Mayo, an analyst who has spent the past five years telling investors to sell Citigroup Inc.’s stock, reversed his stance after the board replaced Vikram Pandit as chief executive officer yesterday.

Mayo, who works in New York for CLSA Ltd., changed his rating to outperform from underperform because Pandit’s ouster reflects a “more proactive board,” the analyst wrote in a note. The change may lead to additional restructuring and more dividends for shareholders as the firm repairs its credibility with regulators, he wrote.

Citigroup Chairman Michael O’Neill leads the board, which replaced Pandit with Michael Corbat, 52, in a move that could improve “poor governance,” Mayo wrote in the note. He hasn’t told clients to buy shares in New York-based Citigroup since October of 2007, when the bank faced billions of dollars in losses linked to subprime mortgages and related securities.

“The change in leadership at Citigroup is a sign of improved governance by the board compared to a decade of risk management and regulatory mishaps with little to no accountability,” Mayo wrote. “Yesterday’s CEO change definitely gives a greater sense of accountability, though we strongly would have preferred a smoother transition.”

Citigroup directors ousted Pandit, 55, after concluding his mismanagement of operations caused setbacks with regulators and damaged credibility with investors, a person with knowledge of the discussions said yesterday.

Biggest Critic

“There was no bigger critic of Vikram Pandit than me,” Mayo said in an interview today on Bloomberg Television’s “Street Smart” with Trish Regan and Adam Johnson. “We got rid of a CEO and a governance that went with him that didn’t consider shareholders enough.”

Mayo said that Citigroup under Pandit treated shareholders as if it was “too big to care.” He said he hopes the firm’s governance will improve under Corbat and O’Neill.

Citigroup gained 3.2 percent to close at $38.43 in New York. The shares have increased 4.8 percent since the bank announced Pandit’s departure.

The lender needs to be aggressive and creative in disposing of unwanted assets, especially in an improving housing market, Mayo said. Citigroup has almost $100 billion of mortgages tagged for sale in its Citi Holdings unit, which Corbat used to run.

“Michael Corbat is an operator,” Mayo said in the interview. “Now you have the operator who has already disposed of assets working for a chairman who has disposed of assets at a company where they need to dispose of more assets.”

To contact the reporter on this story: Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net