By David Henry
NEW YORK, April 24 (Reuters) - The chairman of Citigroup Inc said on Wednesday that the company had already done the “major work” in shrinking the bank down to a profitable core and that directors are confident in the current strategy.
Responding to questions at the company’s annual meeting about whether the bank should be broken up, Chairman Michael O’Neill said he believed Citigroup will earn more than its cost of capital after executives carry out plans to make its global operations more efficient and deal with issues left from the financial crisis.
“The major work has been done” in shedding assets, O’Neill said, referring to the reduction of Citigroup’s set of troubled assets known as “Citi Holdings” to 8 percent of the balance sheet, down from a peak of more than 40 percent.
He also cautioned that he expected “mid-course corrections” in the strategy along the way.
O’Neill declined to say at what point directors would make more dramatic changes to boost the company’s stock price. He had been pressed on the matter by stock analyst Mike Mayo, of brokerage CLSA, who had bought 100 shares of stock so that he could attend the meeting and ask questions of directors.
Mayo, who recommends buying the stock, has estimated that Citigroup’s assorted parts are worth about $75 a share, two-thirds more than its current stock price.
Shares were about $47 on the New York Stock Exchange in early afternoon trade well off their 52-week low of $24.61. But after Corbat was installed as CEO, the shares climbed 27 percent through Tuesday. The gain is three times the 9 percent increase in the KBW bank stock index over the same period.
O’Neill said Citigroup has alternative plans in case the current strategy does not work. He did not elaborate.
In March, CEO Michael Corbat announced financial performance goals for the company to reach by the end of 2015, including a return on tangible common equity of more than 10 percent.
O’Neill, in response to a question, said his relationship with Corbat is good for the company. “I work closely with Mike...I am not intrusive, but I am interested,” O’Neill said.
In October, O’Neill led the board in pushing out former CEO Vikram Pandit and replacing him with Corbat. Since then some observers have wondered if O’Neill, himself a former bank executive, was dictating too many executive decisions.
Corbat, when asked what regulators might do to the company if it had a trading loss like the “London Whale” derivatives debacle at JPMorgan Chase & Co, said, “The way we run our institution is different from JPMorgan.”
The company announced that more than 90 percent of shareholders who voted approved of the company’s executive compensation plan. The plan had been overhauled after the previous plan was voted down at last year’s annual meeting.
The changes to Citigroup’s executive pay plan tied the compensation more directly to stock performance and company profits.
Last year’s pay plan rejection was one of the factors that encouraged the directors to push out former CEO Pandit before he could collect $26.6 million in “retention” awards.
Corbat, who had been Citigroup’s chief executive for Europe, the Middle East and Africa, was paid $11.5 million for 2012 under a hybrid of the old and new compensation plans. Pandit had been paid $15 million for his work in 2011.