Citigroup Inc's Vikram Pandit quit as chief executive on Tuesday after months of simmering tensions with the board - an abrupt change that surprised investors and employees of the third-largest U.S. bank.
The bank's board of directors named Michael Corbat as Citigroup's new CEO. Pandit told Reuters the decision to leave was his own and that he had been contemplating the move for some time.
Multiple sources within and outside the bank said Pandit's departure followed months of tension with Chairman Michael O'Neill over a range of issues, including compensation and the role of Chief Operating Officer John Havens. On Tuesday, Havens also resigned.
Pandit has been involved in some high-profile snafus this year, including the bank's sale of the remaining stake of its retail brokerage business to Morgan Stanley at a loss.
Senior executives were mostly stunned by Pandit's departure. It is not clear precisely what led Pandit to quit, but the decision to swiftly name Corbat as CEO is a clear sign that O'Neill is now fully in control of the bank, according to one person familiar with Citigroup.
On a conference call with investors and analysts Tuesday night, O'Neill gave assurances that there were no other shoes to drop and that the "board remains comfortable with the strategy of the firm."
He also said the board had considered outside candidates before choosing Corbat and that Corbat knew he was under consideration for the job for "quite some time."
Citigroup shares rose as much as 2 percent as some investors said they were not sorry to see Pandit leave. During his tenure, he was known to have adamantly opposed any break-up of the bank, something some money managers argued would increase shareholder value. His resignation could revive that talk, particularly in light of comments by former Citi CEO Sandy Weill this summer suggesting big banks should be broken up.
The board's relationship with Pandit was already under pressure after shareholders rejected the CEO's pay package in an advisory vote in April. He was awarded more than $15 million in 2011 compensation, but 55 percent of shareholders voted against it. The pay issue was thought to still be a source of friction internally, though O'Neill "categorically" denied it.
O'Neill's ascension to chairman and the addition of new board members earlier this year upended the status quo and likely set the stage for disagreements on strategic direction between the chairman and the CEO, a second person familiar with the situation said.
A third person familiar with the bank told Reuters that Pandit and O'Neill clashed because the chairman wanted the CEO "to get in line soldier-style."
A Citigroup spokeswoman declined to comment on accounts of friction with the board.
Investors were taken aback by the news.
"It's not a shock that (Pandit) is no longer there, but the surprise is this is all happening very quickly. Why is he leaving immediately?" said Mike Holland, chairman of New York-based Holland & Co, which oversees more than $4 billion of assets.
"I'm not a Citi shareholder, but if I were, I'd be disappointed that Havens is gone, in some ways more than Pandit," Holland added.
Citigroup shares ended regular trading on Tuesday up 1.6 percent at $37.25.
Pandit's resignation followed a series of high-profile mishaps this year. In March, the Federal Reserve rejected the bank's plans to return capital to shareholders; Pandit had told analysts and investors the bank had enough capital to return some to shareholders.
Last month, Pandit agreed to a low sale price for his bank's stake in the brokerage operated by Morgan Stanley. Citigroup had to take a $4.7 billion charge in the third quarter to write down the value of that stake.
Pandit said he believes he achieved what he had set out to do when he became CEO in December 2007. Over that time the bank has been substantially restructured and has about one-third fewer employees worldwide than it did five years ago.
"The bank is actually in damn good shape. When I came in to the business, we had to restore confidence and rebuild capital. I feel we have done that," he said.
The timing of his resignation, Pandit said, made sense because the bank is planning for 2013 and he did not want to be setting a strategy that someone else would have to execute.
"I wouldn't have done this now if I didn't think the timing was right," he added.
Despite Pandit's confidence about Citi's condition - and though Corbat said he was looking forward "to continuing what Vikram started" - analysts said it was incumbent on the new management team to show their hand quickly on strategy.
"It is just pretty clear that we have to know what the new management team is thinking about priorities for advancing the company's performance. It has been a wait-and-see for so long," said David Hendler, senior analyst at CreditSights. "We have to get to know (Corbat) better and see what he has to say."
RIGHT MAN FOR THE JOB?
Pandit's departure revived questions that were asked from the day he took the job: whether he had the right experience to lead Citigroup in the first place. Those questions did not go away during the depths of the financial crisis, as regulators took a dim view of his performance.
"Citi management's performance during the crisis had not been impressive. They had a very difficult time making decisions and then executing once the decisions were made," Sheila Bair, the crisis-era chairman of the Federal Deposit Insurance Corp, wrote in her recent book.
Born in Nagpur, India, the 55-year-old Pandit obtained two electrical engineering degrees and a doctorate in finance from Columbia University. He joined Citigroup in July 2007 when the bank acquired his hedge fund and private equity firm, Old Lane Partners LP, for $800 million. He personally made some $165 million on that sale.
But Citigroup had to shut down Old Lane the next summer - an early black mark for the executive. Critics later charged that Pandit was too cerebral to run a big consumer bank.
"He was not beloved by Wall Street. He was thrust into that position - he's a hedge fund guy," said Matt McCormick, banking analyst and portfolio manager at Bahl & Gaynor in Cincinnati.
Pandit and Havens long have been linked together in their careers, which lessened the surprise at Havens' exit to some degree. The two worked at Morgan Stanley in the 1980s and 1990s before forming Old Lane.
To some inside Citigroup, the close bond between the men was an obstacle to working with the CEO.
Pandit's "strength was his intelligence. His weakness was that he had a very close team, and didn't think he needed to interact with other people," said a fourth person familiar with the situation, who declined to discuss sensitive internal details publicly. "There was a perception that people in some divisions didn't have access to his team. It was a Morgan Stanley team that he brought in."
Pandit's successor, Corbat, has held a number of senior roles at Citigroup, including running Citi Holdings, the unit established to house businesses and assets that the company wants to shed.
Former Citi chief Weill endorsed the new chief executive.
"I know Mike Corbat very well and I applaud the decision the board has made to name him CEO. He has been a great manager for Citi in all of the important positions he has held," he said in a statement.
Citigroup said Tuesday afternoon that Corbat will receive an annual base salary of $1.5 million.
A fixed-income salesman by training, Corbat started out at Salomon Brothers in 1983. More recently, he has been credited with successfully restructuring some of Citigroup's consumer and credit card units.
In a letter to Citigroup staff after he was named CEO, Corbat said he expected to make some organizational changes after a review, but that he was generally pleased with the company's direction.
"I believe the fundamentals we have in place today are strong and that we are on the right path," he said in the letter, a copy of which was obtained by Reuters.
Corbat, 52, was a standout football player at Harvard and once had aspirations to play professionally. But in a 1982 profile in the Harvard Crimson, he said he was perhaps too skinny to make it in the National Football League.
(Reporting by Rob Cox of Breakingviews, Matthew Goldstein and Jed Horowitz, Additional reporting by David Henry, Charles Mikolajczak, Phil Wahba, Dan Wilchins, Katya Wachtel and Edward Tobin; Writing by Ben Berkowitz; Editing by Paritosh Bansal, John Wallace, Jan Paschal and Steve Orlofsky)