3 Big Questions for Citigroup Now That It's Sent Vikram Pandit Packing
by TheStreet.com Oct 16th 2012 11:50AM
NEW YORK (TheStreet) -- The sudden resignations of Citigroup (C) CEO Vikram Pandit and COO John Havens, a day after the bank reported a purportedly good quarter, raise questions about the future strategy for Citigroup.
According to a Wall Street Journal report, the CEO resigned over clashes with the board over strategy and performance.
Already, newly-appointed CEO Michael Corbat, who has been with the bank for nearly 30 years, has said that changes are afoot. "As a first step, I'm going to take the next several weeks to immerse myself in the businesses and review reporting structures," Corbat said in a memo to employees, reviewed by TheStreet. "These assessments will result in some changes, and I will make sure to communicate these changes with you as decisions are made so that you are informed and updated."
The promise of change could not be more welcome for Citigroup's shareholders. The stock is up nearly 40% year-to-date, but is still down more than 90% in the five years Pandit has been CEO.
Shareholders showed their displeasure by roundly rejecting Pandit's 2011 pay package of $15 million earlier this year.
But perhaps even that was not enough. Shareholders seem eager for a new game plan for Citi.
So what could change under the new CEO?
Pandit's plan for Citigroup has been pretty straightforward since he took over in December 2007 and steered the bank through the crisis.
1. Will the international expansion continue?: On this, Citi has made considerable progress. According to a recent presentation made to investors, the bank derives 60% of its revenues from international markets.
This has also been a strategy industry analysts have been on board with, amid moribund growth in developed economies. The company is also beginning to see key markets in Latin America and Asia turning a profit on an operating basis.
Corbat has considerable experience in international markets and last held the position of CEO for Europe, Middle East and Africa. So it is unlikely that he would reverse the bank's course in international expansion.
However, Citi has not been without its share of problems in Asia, notably Japan, which already is a stagnating economy. The bank has been penalized thrice by Japan's regulators for various violations in its retail banking and private banking operations. That led the bank to institute management changes in Japan and spin off the country into a separate operating unit.
In Korea, the company is facing "regulatory headwinds," Citi revealed on Monday. The bank might reposition its operations in the country.
Corbat might consider repositioning the bank in certain markets and consolidating some of the bank's presence in order to boost efficiency.
More from TheStreet.com
- Twitter Erupts With Citigroup Conspiracies
- Pandit Resigns in Citigroup Shakeup
- What Do Banks Do With a Generation That Doesn't Bank?
2.What Will Happen to the "Bad Bank": Pandit reorganized Citigroup into a good bank, Citicorp, that focused more on traditional lending activities and a bad bank, Citi Holdings, that held non-core assets that the bank was eager to exit after the crisis.
Here again, Citi has met Pandit's target. Consumer banking now accounts for 56% of its business compared to 28% in 1998.
And the bank has sold nearly 100 non-core businesses since 2008, reducing its "bad bank" Citi Holdings to less than 10% of its assets from a 40% share in 2008.
But within core banking, there is still room for improvement. According to a Wall Street Journal report citing people familiar with the matter, Pandit clashed with the board over "strategy and operating performance at businesses including the institutional clients group."
Citi has lagged its big bank peers in investment banking and trading, though in the third quarter, the bank delivered a superior performance in fixed income trading.
Making more credible market share gains in trading and investment banking might be a course of action for Corbat.
3. When will Citigroup return capital to shareholders: On this last metric, Pandit clearly over-promised and under-delivered.
Earlier this year, the Federal Reserve determined that the bank would not be able to sustain a severe shock to the economy if it pursued an aggressive buyback plan. This came as a surprise to Pandit, who had assured shareholders that the bank was in a position to return capital.
The management maintained in their earnings conference call Monday that they are well placed to return significant capital in the future, though Pandit this time cautiously refrained from making any promises for 2013.
Oppenheimer analyst Chris Kotowski speculates in a report Tuesday that it is possible the board decided that "Pandit's relationship with regulators was too strained and that they would increase the chance of substantial capital returns in next year's CCAR process with his departure."
Perhaps with a new CEO at the helm with a reputation for prudent risk management, the bank will have a shot with the regulators.