Citi's CEO may have edge over Merrill's, for now

NEW YORK (Reuters) - It's early days but after half a year, Citigroup Inc (C.N) Chief Executive Vikram Pandit may be doing a better job navigating the mortgage meltdown than Merrill Lynch & Co Inc MER.N CEO John Thain.

Both Pandit and Thain took the reins at their respective financial institutions late last year, after their predecessors had already recorded billions of dollars in write-downs and credit losses.

When Thain took over, he was widely praised for his work as chief operating officer at Goldman Sachs Group Inc (GS.N) and CEO shepherding the New York Stock Exchange through a global expansion via the takeover of Euronext.

Pandit was more of an unknown and some critics questioned whether he had enough experience in areas such as consumer banking.

"I had mixed emotions when he became CEO. But it was a great decision. Citi is much further ahead of where I thought it would be at this point," said Robert Olstein, Chief Investment Officer at the Olstein Funds, which manages about $1 billion and owns about 2.36 million Citi shares.

In the first two full quarters with Thain and Pandit as CEOs of their respective banks, Citi so far has had a better trajectory.

The largest bank in the U.S. by assets recorded $22.8 billion of write-downs in the fourth quarter, $16.8 billion of write-downs and credit costs in the first quarter and $11.7 billion in the second quarter.

Merrill Lynch, meanwhile, recorded about $16.7 billion of write-downs in the fourth quarter, $6.5 billion in the first quarter and $9.7 billion in the second quarter.

"Merrill's write-downs have been a lot more volatile, but Citi's are dropping, so you can argue that Citi is progressing better in getting the write-downs to slow," said Adam Compton, co-head of global financials research at RCM in San Francisco, which has about $150 billion of assets.

When asked if Citi was performing better, Compton said: "The declining losses there would seem to point to that."

So far this year, Citi's shares are down 34 percent, while Merrill's have slid 42 percent.

To be sure, the sailing has not been entirely smooth for Pandit, nor will it be in the near term. Citi said last month it was closing down Old Lane, the hedge fund that Pandit and others sold to Citi for $800 million last year.

Citi's Chief Financial Officer, Gary Crittenden, acknowledged on Friday that the bank still faces big challenges, including the deterioration of consumer credit.

"When it comes to Pandit, everyone may be getting overly enthusiastic prematurely," said Lee Delaporte, director of research at Dreman Value Management, which owns some $15 billion of assets including Citi shares.

DEALT A DIFFICULT HAND

But Thain has had missteps as well. He has underestimated the extent of Merrill's credit difficulties and capital needs. In January, he told Reuters at the World Economic Forum in Davos that Merrill's exposure to distressed assets had been marked down so low that he had no worries about further losses. The company has posted more than $7 billion of net losses to shareholders this year, mainly due to write-downs.

And in April, Thain told reporters on separate occasions that Merrill did not need to raise capital. Soon after that, the bank issued $2.55 billion of preferred securities.

Supporters argue that Thain stepped into a more difficult situation.

"I think he's doing as well as can be expected given the situation he was handed," said Malcolm Polley, chief investment officer at Stewart Capital Advisors.

And two quarters is a bit premature to be fully assessing any chief executive's performance.

"You can't tell much about Citi or Merrill in just a few months. Let's see where they are in three years," said Jim Huguet, co-chief executive at Great Companies LLC.

But Pandit's supporters are hopeful after recent results.

"I think Pandit is a superstar in the making," Olstein Funds' Olstein said.

(Additional reporting by Elinor Comlay; Editing by Andre Grenon)