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UPDATE 10-Citi CEO Pandit exits abruptly after board clash
October 17, 2012 / 1:56 AM / 5 years ago

UPDATE 10-Citi CEO Pandit exits abruptly after board clash

* Michael Corbat named CEO
    * Pandit says he had considered leaving for some time
    * COO John Havens, a close Pandit associate, also resigns
    * Citigroup shares rise 1.6 percent

    By Carrick Mollenkamp and Jed Horowitz and Rob Cox
    Oct 16 (Reuters) - A regular Citigroup Inc board
meeting to talk about quarterly results took an unexpected turn
on Monday night, when simmering tensions between Chairman
Michael O'Neill and then Chief Executive Vikram Pandit came to a
    O'Neill criticized Pandit for being too detached from the
bank's day-to-day operations, and told him to get more involved,
according to sources briefed on the situation. 
    Instead, Pandit, who had been thinking of leaving for some
time, decided to resign. O'Neill did not stop him, the sources
said. John Havens, the bank's chief operating officer and a
close confidant of Pandit's, also followed in his boss's
footsteps out of the third-largest U.S. bank. 
    In the ensuing scramble, the board pulled out its succession
plan and installed Michael Corbat, head of Europe, Middle East,
and Africa, as CEO, announcing the changes to stunned employees,
Wall Street and investors early on Tuesday morning. 
    Pandit believes he is leaving the bank in good shape, but
analysts said that Corbat has a good deal of hard work to do.
Citigroup faces a shifting regulatory environment, a weak global
economy, and questions about its expenses, and many analysts and
even employees at the bank wonder if the bank is too big to
    Pandit was known to have adamantly opposed any break-up of
the bank. His exit could revive that talk, particularly in light
of comments this summer by Sandy Weill - the man who pioneered
the financial supermarket model - suggesting big banks should be
broken up.
    But on a conference call, Corbat emphasized that he does not
wish to change the strategic direction of Citigroup.
    "There is no question that Vikram laid the foundation to
support Citi's long-term growth," Corbat said. 
    Corbat, 52, is known for being skilled at operating
businesses, which the board believed Pandit was not, sources
    Citigroup's shares closed up 1.6 percent on Tuesday.
    A Citigroup spokeswoman declined to comment on accounts of
friction with the board.
    Tensions between the CEO and the chairman had been mounting
almost since the day O'Neill took the reins of the board in
April, people briefed on the matter said. 
    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.
    Although Pandit delivered third quarter earnings earlier on
Monday that were better than many analyst estimates, O'Neill was
not happy with the results, which included the charge from
selling the brokerage business to Morgan Stanley at a loss. 
    O'Neill and Pandit did not clash over strategy, sources
said, but over the CEO's execution, which was marked by a series
of high-profile snafus such as the bank's failure to win
regulatory approval to buy back shares or boost its dividend in
    O'Neill, who turns 66 at the end of the month, also was
increasingly irritated with Havens, a longtime Pandit associate,
these sources said. 
    Pandit helped run investment banking at Morgan Stanley,
where Havens rose to head equity trading. The pair left in 2005
to start a hedge fund that they sold to Citi in 2007 for $800
million. The bank subsequently shut the business because of poor
    When Havens was named to the top posts in January 2011,
Pandit called him "indispensable to the turnaround of Citi". But
O'Neill viewed the 56-year-old Havens as divisive, according to
people familiar with the bank. 
    Havens could not be reached for comment.  
    O'Neill's performance in his short time as chairman could
signal a new era for the Citigroup board and reflect a new
toughness on the part of directors nationwide, as investors
press for more oversight of management. 
    In the past, the board mainly deferred to the chief
executive and asked few tough questions, stepping in only if
problems developed. In contrast, O'Neill appears to be
challenging management, said a person familiar with the bank.
    Pandit and Havens, who was Citi's highest paid senior
executive in 2009 and 2010, can salve themselves with the $100.3
million each received last year as part of a deferred payment
for their hedge fund.
    In an interview, Pandit, who is 55, said that he had been
thinking about early retirement for a while.
    "It was never my ambition that this would be the last thing
I do in my life," he said. "We wouldn't have done this if we did
not have a succession plan in place".
    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
    "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.
    Pandit has long faced questions about whether he had the
right experience to lead Citigroup. Born in Nagpur, India,
Pandit obtained two electrical engineering degrees and a
doctorate in finance from Columbia University. 
    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.
    Those questions did not go away during the depths of the
financial crisis, as regulators took a dim view of his
performance and they continued to haunt the executive.
    In one recent and embarrassing failure, Pandit had convinced
analysts in March that the bank had recovered enough to win
permission to raise its quarterly dividend to 10 cents a share
from a penny, only to see the Federal Reserve reject his plan
after conducting stress tests. 
    "Regulators want to work with people who they understand
will not try to pressure them or game them and who understand
the regulatory process," Sheila Bair, the former chairman of the
Federal Deposit Insurance Corp, said in an interview.
    O'Neill, when asked by an analyst about the rejection of the
capital plan, praised Corbat for the relationships he has
developed with regulators while overseeing the Citi Holdings
portfolio of troubled assets. 
    "He is very well viewed there," O'Neill said. "So, from a
regulatory perspective, I think that we are in good shape and
likely to get better."
    The personnel changes did raise concerns at Moody's
Investors Service, which changed the outlook on Citi's ratings
to negative. The ratings agency said the personnel changes could
raise questions about the bank's efforts to improve its risk
    On the conference call, Corbat said that Brian Leach, the
bank's chief risk officer, and John Gerspach, chief financial
officer, are staying at the bank. 

    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.  
    O'Neill, the chairman, said Corbat knew he was under
consideration for the job for "quite some time". 
    Sources familiar with the situation said the board had drawn
up the succession plan by the summer. 
    Weill, the legendary former Citi boss, 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.
    Corbat 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 not big enough to
make it in the National Football League.
     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.

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