Will a new board and regulatory pressure force Citi's Pandit out?

In the fall of 2005, with Citigroup (C) shares trading around $45, hedge fund manager Tom Brown wrote a missive on his website, BankStocks.com, urging the break-up of the company that invented the financial services supermarket.

Now, with shares down more than 90 percent, new board members with fresh perspectives, and pressure from FDIC Chairwoman Sheila Bair, time could be running out for CEO Vikram Pandit to turn around Citigroup. It was recently reported that Bair has been lobbying fellow regulators for greater control over the firm, which has relied on the government for $45 billion in capital and asset guarantees on a $306 billion portfolio of real estate loans.

Is Vikram Pandit on track to follow Rick Wagoner as a casualty of government involvement in private business? With regulatory agencies taking on new, often overlapping functions, some of the threat can be attributing to posturing, Brown said in an interview with DailyFinance -- but he was quick to add that Pandit is far from off the hook. "My belief is that the only large bank CEO that will change this year will be Pandit, and I think that will happen sometime in the summer, after second quarter earnings. I do not think that will be regulatory enforced, though it may be regulatory encouraged. The board has been changed, and I think this board will make that change."

Citigroup recently added four new board members: Jerry Grundhofer, former CEO of US Bancorp (USB); Michael O'Neill, former CEO of Bank of Hawaii (BOH); Anthony Santomero, former President of the Philadelphia Fed; and William Thompson, former CEO of PIMCO.

Vernon W. Hill, founder of Commerce Bancorp and a partner of Brown's, knows a thing or two about retail banking. He cites abysmal results from a recent J.D. Power survey of banks, which placed Citibank in the bottom tier in overall satisfaction in every region of the country, as symptomatic of the company's struggles. "Other than the new four board members, the board has demonstrated that they cannot manage this bank. Normally when you fail, things change."

Still, Hill thought the board would need a strong push from regulators to oust Pandit and start anew -- perhaps even by breaking up Citigroup into more focused business lines, where the company would have a chance of succeeding. A break-up of Citigroup, with nearly $2 trillion in assets on its balance sheet, would be one way to target a reduction in systemic risk. "Every time there's an economic problem in the world, going back to the third-world debt crisis, Citibank is on the verge of going broke. Too big to fail has also proven to be too big to manage."


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