In the HBO film Too Big To Fail, based on the bestseller of the same title by New York Times journalist Andrew Ross Sorkin, there’s a scene where William Hurt as then-Secretary of the Treasury Hank Paulson offers his opinions on some of the bankers he’s just called in to try to sort out the mess of Lehman Brothers.
Hurt was commanding as the former Goldman Sachs boss and absolutely owned the film. In a sequence designed explicitly to introduce the new characters, the TV-version of Paulson describes JP Morgan’s Jamie Dimon as "smart”, Goldman Sachs’ Lloyd Blankfein as "a superstar”, Morgan Stanley’s John Mack as "a fighter”, and Merrill Lynch’s John Thain as "a pragmatist”.
As the bankers made their way into the New York Federal Reserve building and towards an increasingly frustrated Paulson, the voice of Hurt utters the following in regards to the man who, up until last night, led America’s largest commercial bank: "Vikram Pandit is the new guy at Citigroup; no one knows if he’s running Citi or if Citi’s running him.”
Pandit has just stepped down from Citi, effectively immediately, along with chief operating officer and close ally John Havens.
The bank’s Europe, Middle East and Africa boss Michael Corbat is taking the wheel from Pandit. Corbat joined investment bank Salomon Brothers in 1983 after graduating from Harvard with an economics degree. Salomon was picked up by Travelers Group in 1998, which merged with Citi in the same year.almos
Today, Dimon and Blankfein still have their jobs. Mack continues to advise Morgan Stanley, now headed by Australia’s James Gorman, and Thain secured the crucial deal for Merrill Lynch with Bank of America, which was originally lining up Lehman Brothers.
Signals have been emerging from Citi for some time that Pandit’s relationship with the board had deteriorated, particularly with chairman Michael O’Neill. Unlike Mack, there was no mention of an ongoing advisory role for Pandit. The bank simply wished him thanks for his "leadership, integrity and resilience in guiding Citi through the crisis and positioning it well for the future”.
The problem for Pandit is that Citi continues to bare those scars of the GFC more than its competitors. After almost five years since his appointment at Citi, the bank’s share price is still down 89 per cent.
While Dimon lost much of his sparkle with that $US2 billion trading loss earlier this year, JP Morgan’s share price is down just 7 per cent since the end of 2007. Blankfein didn’t help the stereotypes of Wall Street bankers with his "doing God’s work” comment in 2009, but the firm’s share price is down a much less troublesome 43 per cent. Morgan Stanley is still down 65 per cent, but it does have a new chief executive and has added 18 per cent this year.
While Pandit is an astonishingly well-credentialed man with four degrees from Columbia University, the case to move him on was compelling, particularly when he was compared to the ‘smart’ Dimon and the ‘superstar’ Blankfein.
Pandit came to Citi by way of the bank’s acquisition of his hedge fund Old Lane for $800 million, for which he received $165 million, as the market peaked in 2007. Less than a year later Pandit, now chief executive, shut his baby down and Citi copped a $200 million writedown for the trouble.
While that’s definitely an inauspicious beginning, at the end of the day it was Citi’s fault to pay what it did for Old Lane and few summations on Pandit’s career currently floating around emphasise this point at all.
Nonetheless, having not yet racked up 12 months in the top job, his reputation was seriously weakened.
Concerns that Pandit was incapable of moving an organisation of Citi’s size with great dexterity have emerged on a number of occasions, including just yesterday.
Citi failed to respond to the Federal Reserve’s clear signals about QE3 and the recent surge in mortgage refinancing on the back of lowered interest rates has greatly aided the latest results of JP Morgan and Wells Fargo, but not Citi. The company admitted yesterday that it was tardy in this respect, when it reported an 88 per cent decline in third quarter net profit.
That decline was greatly aided by an embarrassing $3 billion loss on the Smith Barney retail brokerage joint venture with Morgan Stanley, after Citi handed full control of the unit to its partner last month.
The deal was seen as a coup for Morgan Stanley’s Gorman, not so for Pandit, who started up the joint venture in 2009, his second year in the job.
Former Federal Deposit Insurance Corporation chair Sheila Bair, who got a good look at Pandit during the global financial crisis, writes in her new book Bull By The Horns that his appointment was indicative of a bank that had lost its way right before a once-in-a-generation financial catastrophe.
"The selection of Pandit simply reaffirmed that Citi was no longer a bread-and-butter commercial bank,” writes Bair. "It had been hijacked by an investment banking culture that made profits through high-stakes betting on the direction of the markets rather than traditional, balanced lending.”
Bair also told Bloomberg Radio overnight that her concerns for Pandit ran deeper than the specific details of his resume.
"I saw not a good ability to execute, not a good ability to have information that I thought was pretty basic for managing a large institution,” she said.
As Bair alludes to in the above quote from her book, Pandit was met with a large investment banking business that needed to be severely cut back during a financial shock that made the very best of executives look foolish. This task is happening, but too slowly.
His tenure has been further complicated by the enormous $US45 billion bailout that Citi had to take while its rivals emerged from the spectre of government support much sooner.
Indeed given the state that Citi was in when Pandit took over, five years is actually a pretty long time for him to stay at the helm.
However, his record informs the reports in the New York Times and Bloomberg, citing senior Citi officials, that rather than leaving the bank after the most gripping period in its history exhausted but content, it appears the board pushed him out.
Alexander Liddington-Cox is Business Spectator’s North America Correspondent.
Citi down, Pandit out
Compared to his peers at America's other big banks, Vikram Pandit was considered a minor talent. After a five-year reign in which Citigroup's share price has plunged, the board has seemingly backed that consensus.
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