Expect More Top Management Changes at Citi

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The last thing anyone in Washington wants to do is to introduce more chaos and uncertainty at the world’s most troubled bank. For that reason, I suspect that the persistent rumors about the ousting of Citi’s CEO Vikram Pandit are way overdone. I might be wrong about Pandit, but I’m certain that his key lieutenants don’t have the same staying power.

Everyone knows the FDIC Chairwoman Sheila Bair is worried about Citi. And she should be: she's responsible for billions of taxpayer dollars that are now potentially at risk because of Citi's woes.

Make no mistake--other regulators are equally concerned about the health and welfare of Citigroup. But at the heart of the FDIC's beef is the stalling of the “thorough, independent management review” that Citi had already agreed to with all of its regulators months ago, according to our sources. That report or even the start of that process has yet to materialize and Bair is none too pleased. The third-party outside assessment is intended to benchmark the management team's qualifications against its banking peer group, our sources say. The July 9 changes among which shifted former CFO Ned Kelly out of a job he held for only four months wasn’t part of that agreed-to plan, and was something that the FDIC only learned about the night before.

Kelly is one of the most respected regulatory bankers in Washington and on the Street. He's run his own banks. But he's never been a CFO and no matter if folks think that is splitting hairs; the FDIC was not pleased with a non-CFO in a CFO role. Broadly speaking, we hear that the FDIC thinks that Citi's top team still doesn’t have the breath of commercial and retail banking experience necessary to run the sprawling bank. Moreover, all the regulators want an objective reviewer to make those calls. Expect the launch of that review to be announced soon.

Also expect that new director faces on top of the four announced in March. Also, Citigroup is gearing up to announce more strategic changes to its business plan and reporting structure sometime in late summer or early fall.

In the meantime, there will be plenty of other big news coming out of Citi in the few weeks, not the least of which is second-quarter earnings results tomorrow. The bank already has a tough act to follow behind JPMorgan and Goldman Sachs, which had healthy profit reports despite a sketchy outlook.

Still even the bank’s harshest critics, money manager William Smith of SAM Advisors in Manhattan, says he expects the market will be taken by surprise at how well the bank’s results are going to turnout.

If true, that’ll bode well on investor sentiment for the ongoing exchange offering slated to expire July 24. Blogger Paul Kedrosky of InfectiousGreed and economist/blogger Donald Marron noted that preferred and common stock have been showing a price anomaly that either demonstrates a lack of confidence in the deal or a failure of arbitrage opportunities. Either way, Citi shares continue to languish. The stock has fallen 80% from a 2009 high of $7 in January and has hovered at $3 ever since.

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