Citigroup's Pandit gets ready for his close-up

NEW YORK Tue May 6, 2008 12:58pm EDT

People walk past a Citibank branch in New York February 17, 2007. REUTERS/Keith Bedford

People walk past a Citibank branch in New York February 17, 2007.

Credit: Reuters/Keith Bedford

NEW YORK (Reuters) - Vikram Pandit's first five months as Citigroup Inc (C.N) chief executive have been no honeymoon.

Since taking over in December from Charles Prince, who quit under pressure, Pandit has presided over nearly $15 billion of reported losses, much of the bank's efforts to raise more than $40 billion of capital and a 41 percent dividend cut.

Pandit has also faced repeated demands from investors that he slash costs, divest poorly performing businesses and perhaps even break up the largest U.S. bank.

In a four-hour presentation to analysts and investors on Friday, Pandit and other top executives will lay out their vision for Citigroup. Pandit, known for his caution, has promised details on how he will make it run better.

"If people are expecting a grand design, they may be disappointed," said Marshall Front, who oversees $800 million at Front Barnett Associates LLC in Chicago. "I think he will give us the state of the union: where have we been, where are we now and where are we headed. We'll have a better idea of his stewardship in six months."

Investors have long viewed New York-based Citigroup, which has $2.2 trillion of assets and operates in more than 100 countries, as a bloated work in progress.

The bank's shares are down about one-fourth since Pandit took over and by more than half in the last year.

At the bank's nearly four-hour annual meeting last month, shareholders vented anger over the share price and executive pay, and employees expressed dismay over their treatment.

"I would like to hear some definition of how far they have to cut," said Michael Holland, who runs the money manager Holland & Co in New York. "Pandit would be smart to avoid any kind of time frames, keep expectations modest -- and try to outperform those expectations."

SMALL STEPS

Pandit has so far moved in smaller steps.

He has agreed to sell most of the CitiCapital commercial lending and leasing unit, resulting in a $325 million after-tax loss and the bank's stake in the CitiStreet benefits servicing venture, resulting in a $200 million gain.

The Wall Street Journal said he may sell Primerica Financial Services, an insurance and mutual fund sales unit.

Pandit reduced risk by cutting back on mortgage lending and deciding to unload $45 billion of loans, and selling $12 billion of loans to fund corporate buyouts at a discount.

He has also reorganized the U.S. wealth management unit and shaken up the organizational structure for consumer banking, Citigroup's biggest business.

Pandit lured Terri Dial, who revived Lloyds TSB Group Plc's (LLOY.L) U.S. banking business, to run North American consumer operations. He also installed former Morgan Stanley (MS.N) colleague John Havens to run investment banking.

Citigroup is also restructuring its Old Lane hedge fund unit, which Pandit once ran and letting outside investors withdraw their money. This comes less than a year after Prince paid about $800 million for Old Lane, in part to add Pandit.

And the bank has announced 13,200 job cuts in 2008. Analysts have said tens of thousands of further cuts may be needed. The bank ended March with 369,000 employees.

MORE PROBLEMS AHEAD?

But the bank's surprise sale last week of about $4.9 billion of common stock fueled fears that undisclosed problems on its books might be deeper and longer-lasting than feared.

Oppenheimer & Co's Meredith Whitney, who last October correctly forecast the capital-raising drive and dividend cut, said Citigroup may need another $10 billion to $15 billion of capital and to cut its dividend a second time.

"I'm like to see how much more capital Citigroup really needs to raise and, in its judgment, how much more deterioration there will be in housing, which is an important driver of further write-downs," Front said.

Though Pandit has been in the job for about five months, he faces pressure to do something -- anything -- to show the bank can generate sustainable profit and revenue growth.

"Patience is required," Holland said. "But pressure is building. It's the nature of Wall Street: what have you done for me lately."

(Editing by Andre Grenon)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.