You are here

Citigroup’s Chief Resigns in Surprise Step

Tuesday, October 16, 2012 - 21:32
Original URL:
Editor's note: 

When Vikram Pandit's departure was announced unexpectedly, DealBook's reporters called on a tight deadline: Could I tell what Citigroup would have to pay him on his way out the door?

Weeks before Vikram S. Pandit’s surprise resignation on Tuesday as chief executive of Citigroup, the banking giant’s powerful chairman, Michael E. O’Neill, was privately huddling with other board members to plan how to replace him, according to several people briefed on the talks.

The frustrations of the board members had been building. This year the bank was publicly embarrassed when the Federal Reserve indicated Citi was not healthy enough to start paying more money back to shareholders.

Then in September, some board members felt that Citigroup had left billions on the table when it sold a stake in its wealth management unit to Morgan Stanley.On Monday, after the stock market’s close, Mr. O’Neill met with Mr. Pandit at the bank’s New York headquarters and after their talk, Mr. Pandit, 55, offered his resignation.

In an interview, Mr. Pandit said that the decision to resign was entirely his own, adding that it was “something that I had been thinking about for a while” and that Monday “it occurred to me to go see Mike.”

For weeks, though, Mr. O’Neill and other board members had been mapping out the transfer of power during meetings that occurred, in part, while Mr. Pandit was in Japan last week attending a gathering of the International Monetary Fund and the World Bank, said the people briefed on the matter, who declined to be named because the meetings were private.

Mr. Pandit, who navigated the troubled bank through the enormous market upheaval of the financial crisis and helped it shed billions of dollars in soured assets, announced his resignation to Wall Street on Tuesday morning, along with that of John Havens, the company’s chief operating officer and a trusted lieutenant of Mr. Pandit’s.

“This is a ludicrous management transition, the worst I’ve seen in my 25-year career,” said Michael Mayo, an analyst at Credit Agricole Securities.

Mr. Pandit’s replacement, Michael L. Corbat, a veteran of Citigroup who was leading much of its international business, will have to grapple with some of the same problems that dogged Mr. Pandit, including how to shed unprofitable assets and refocus the giant bank. The bank’s shares, which lost nearly 90 percent of their value during Mr. Pandit’s tenure, rose 1.6 percent to $37.25.

Mr. Pandit presided over a turbulent chapter in Citi’s history, steering the bank back from the brink of collapse during the financial crisis when Citi received a $45 billion lifeline from the federal government, along with other federal support.

The bank was in such dire shape that Mr. Pandit said he would take a token $1 annual salary until the firm started earning profits again. Mr. Pandit was heralded when he later brought the bank back to profitability. By the end of 2010, the government had cashed out its remaining investment in the company, earning a $12 billion profit for taxpayers on the bailout.

Mr. Pandit’s total direct compensation, which includes salary, bonus payouts and some stock awards, totals $56.4 million in his years as chief, according to the research firm Equilar. But his biggest payout from Citi was the $165 million that he received when the bank bought Old Lane Partners, the hedge fund he co-founded after leaving Morgan Stanley.

With Mr. Pandit’s exit, just two men who ran Wall Street banks during the financial crisis remain in their posts: Jamie Dimon of JPMorgan Chase and Lloyd C. Blankfein of Goldman Sachs. Both firms rebounded from the upheaval much more quickly and strongly than Citigroup.

Power dynamics on the bank’s board shifted against Mr. Pandit this year when Mr. O’Neill replaced Richard Parsons, who was viewed as friendlier toward Mr. Pandit. Along with a handful of vocal board members, Mr. O’Neill started raising questions about the direction that Mr. Pandit was taking the bank, according to those people briefed on the matter.

Some board members saw the Federal Reserve’s rejection in March of Citi’s proposal to buy back shares and increase its dividend payments as a reflection, in part, of Mr. Pandit’s poor relationship with the bank’s regulators, according to several people close to the bank.

Then some board members were angered when the final valuation of the wealth management unit, which is jointly owned with Morgan Stanley, was considered a coup for Morgan. The banks agreed to value the brokerage operation at $13.5 billion, and as a result, Citi took a $2.9 billion write-down during the third quarter.

Mr. Pandit’s resignation was a surprise on Tuesday because its third-quarter earnings, released the day before, were seen as relatively strong, excluding the write-down and one-time items.

“There is nothing better than our third-quarter earnings announcement to demonstrate definitively that we have turned this company around,” Mr. Pandit said in a memo to employees.

Inside the bank, the news was greeted with shock. A huge gasp was audible on the trading floor in Manhattan as employees watched the news on monitors showing CNBC, according to several employees. When Mr. Havens’s resignation was reported, some employees on the trading floor jumped up from their chairs.

On his trip to Asia last week, Mr. Pandit did not give any outward indication that he knew of the storm brewing back in New York. “He was notably upbeat,” said one Wall Street executive close to Mr. Pandit. “There is no way he knew this was coming.”

Mr. Pandit returned from his trip on Saturday night and spent Sunday preparing for Monday’s earnings call. At that point, the decision for him to resign had not been made, he said in the interview on Tuesday. Mr. O’Neill said in a conference call with investors only that Mr. Pandit had submitted his resignation and the board had accepted it.

Mr. Pandit ascended the ranks as quickly as he descended them. In late 2007, when he took over as chief for Charles Prince as the bank was announcing large losses related to subprime mortgages and credit market turmoil, Mr. Pandit had been at the bank only about five months.

The bank, which grew out of a string of acquisitions by Sanford I. Weill, had become emblematic of financial institutions that are too large to manage because of labyrinthine bureaucracy and underperforming divisions.

Throughout his tenure, Mr. Pandit has worked to transform Citigroup into a smaller bank that focused on safer investment banking and consumer and corporate lending.

Still, shareholders were apprehensive. Despite recent gains in the stock, the shares had fallen 89 percent since he took over. In April, they rejected a board-approved pay package that increased Mr. Pandit’s pay to $14.9 million in 2011, up from $1 a year in 2010. That rebuke surprised some board members, adding fodder for those who wanted to replace Mr. Pandit.

Some banking analysts questioned whether anyone, even Mr. Corbat, would be able to right the course of Citi. In a note to clients, Meredith Whitney said, “No C.E.O. will be able to change these facts in the near-term.”

Mr. Pandit did not have an employment agreement that guaranteed him a hefty payout in the event of an unexpected departure, according to Disclosure Matters, a company that analyzes corporate documents.

Michael J. de la Merced contributed reporting.

A version of this article appeared in print on 10/17/2012, on page A1 of the NewYork edition with the headline: Citigroup’s Chief Resigns His Post In Surprise Step.

Meta tags: