Citigroup Chairman Parsons Said to Tell Board He Will Step Down
Citigroup Inc. (C) Chairman Richard Parsons, who helped the bank become a behemoth that almost collapsed in the financial crisis and then led its recovery, will be replaced by fellow director Michael O’Neill.
O’Neill will take over after the firm’s shareholder meeting in April, New York-based Citigroup said in a statement. Parsons, 63, spent 16 years on the board, becoming chairman in 2009 after the bank’s $45 billion bailout by U.S. taxpayers.
Parsons’s successor inherits a board grappling with a slump in revenue, higher costs and new regulations as Chief Executive Officer Vikram Pandit pushes the firm into emerging markets. Citigroup has repaid the U.S. Treasury Department’s rescue, which generated a profit of about $12 billion for taxpayers. The firm posted total net income of $21.9 billion for 2010 and 2011, compared with $29.3 billion of losses for 2008 and 2009.
“Parsons can walk out knowing he was part of the problem but he was also part of the solution,” said David Knutson, a credit analyst in Chicago with Legal & General Investment Management, which owns Citigroup debt. “He, along with his management team, managed to steer Citi through probably the toughest crisis of the last two decades.”
Board members Alain Belda and Timothy Collins also will leave the panel, Citigroup said.
Parsons, who grew up in Brooklyn’s Bedford-Stuyvesant neighborhood, joined President Barack Obama’s advisory panel on jobs in February 2011. He is a senior adviser to Rhode Island- based Providence Equity Partners Inc., which specializes in buying media and telecommunications businesses.
Time Has Come
“Given the strong position that Citi is in today, I have concluded that the time has come for me to take my leave,” Parsons said in the statement. “I have complete confidence in the management team, the actions they have taken to strengthen Citi, and the course they have charted for the future.”
Citigroup has climbed 30 percent this year, the third-best performance in the 24-company KBW Bank Index. (BKX) The shares are down 76 percent since the end of 1996, the year when Parsons became a director. The bank suspended dividends after he was named chairman in 2009 and approved a 1-cent quarterly payout last year.
Parsons, in an interview last year with Bloomberg Businessweek, said his relationships with then-Comptroller of the Currency John Dugan and Treasury Secretary Timothy F. Geithner helped Citigroup weather the financial crisis.
“Timmy Geithner would say, ‘Call me directly, because this is too important an institution to go down,’” Parsons said.
Parsons led Dime Savings Bank of New York before joining Citigroup’s board in 1996. He became a Time Warner Inc. (TWX) executive about the same time and supported the firm’s 2001 takeover by America Online Inc. (AOL) He served as CEO and chairman of the combined company after it took a record $54 billion writedown tied to the deal.
At Citigroup, he was among directors who oversaw the transition of the firm into the biggest bank in the world under CEOs Sanford “Sandy” Weill and Charles “Chuck” Prince. During Parsons’s tenure on the board, the lender invested in bonds tied to subprime mortgages, which later caused losses as the loans soured and almost forced the firm’s collapse.
The directors failed to ensure that Citigroup had “effective” risk management, according to a Feb. 14, 2008, letter to Pandit from John Lyons, an Office of the Comptroller of the Currency examiner. Managers were more concerned with short-term performance than potential losses, Lyons wrote.
Parsons replaced Win Bischoff as chairman on Feb. 23, 2009, at the request of fellow board members, shortly after the government provided the bailout and guaranteed $301 billion in risky assets. He tapped new directors to bolster the board’s banking experience, including O’Neill, Jerry Grundhofer, Anthony Santomero, Robert Joss and William Thompson.
Not everyone supported Parsons in the wake of the bailout. Glass Lewis & Co., a shareholder advisory firm, recommended last year that investors vote him off the board and that they should “still be concerned with the poor oversight” provided by Parsons and other directors.
“His exit was probably a bit more graceful than some of the others,” said Knutson, referring to former senior figures at other Wall Street banks. “You think about the likes of Thain or Lewis, these guys got taken out toes first.”
Michael O’Neill, 65, joined the board in 2009. He previously ran Bank of Hawaii Corp. and was a Bank of America executive in the 1990s. He was appointed last year as chairman of Citibank NA, the lender’s primary banking subsidiary. He will probably step down from this position if he replaces Parsons, a person briefed on the matter said.
Shannon Bell, a spokeswoman for Citigroup, declined to comment. O’Neill also didn’t comment in an e-mail.
O’Neill served in the U.S. Marine Corps before joining Continental Bank Corp., which later was bought by Charlotte, North Carolina-based Bank of America.
He was appointed CEO of Barclays Plc (BARC) in February 1999 and resigned two months later after a bout with the flu led to complications from an irregular heartbeat, the London-based bank said at the time.
At Citigroup, he heads a panel overseeing Citi Holdings, the unit that contains more than $200 billion of unwanted assets. He’s a member of the Executive Committee and Personnel and Compensation Committee, according to the bank website.
The new board will oversee Pandit’s performance in the wake of 2011, when revenue fell 9.5 percent from a year earlier while expenses climbed 7 percent. The results included a 5 percent increase in costs from compensation and benefits. Profit rose 6 percent to $11.3 billion. Shares tumbled 44 percent.
Pandit is cutting 5,000 jobs to trim as much as $3 billion of expenses this year. That may be threatened by legal costs and a slowdown in the sale of unwanted assets, the company said.
A change of leadership on the board will help the bank, according to Michael Mayo, an analyst at Credit Agricole AG, who has an “underperform” rating on Citigroup shares.
“We continue to believe that Citi needs a new chairman,” Mayo wrote in a Feb. 23 report. “This move is a necessary first step, albeit not sufficient by itself, to help better evolve Citi’s culture, controls, conduct, costs, conservatism, and communication.”
To contact the reporters on this story: Donal Griffin in New York at firstname.lastname@example.org