Citi's Pandit in shock resignation after board clash

Reuters

Citigroup Inc Chief Executive Vikram Pandit resigned abruptly on Tuesday after months of simmering tensions with the board of directors, a shocking change at the top of the No. 3 U.S. bank.

A statement from Chairman Michael O'Neill said Michael Corbat, previously chief executive for Europe, Middle East and Africa, would succeed Pandit as CEO and as a board member.

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Within minutes of the bank's announcement, Pandit's name was gone from Citigroup's website. Chief Operating Officer John Havens, a long-time associate of Pandit, also resigned.

Pandit's sudden resignation is the culmination of months of disagreement with the board, in particular O'Neill, over strategy. 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, a person familiar with Citigroup said. Corbat is reputed to be close to O'Neill and attuned to his thoughts on managing the bank.

Citigroup shares rose as much as 1.5 percent in morning trading 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 Citigroup, something some money managers argued would increase shareholder value.

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.

O'Neill's ascension to chairman earlier this year, and the addition of new board members, 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 Citigroup spokeswoman declined to comment on accounts of friction with the board.

Investors were taken aback by the news, which also caught senior Citigroup executives off guard.

"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.

HIGH-PROFILE DEFEATS

Pandit's resignation follows a series of high-profile defeats this year. In March the Federal Reserve rejected the bank's capital plans after a stress test; Pandit had led analysts and investors to believe the plans would be approved.

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.

Yet the bank's stock rose sharply on Monday after Citigroup reported third-quarter results, even with the write-down, that were much better than analysts expected. The stock was up another 29 cents to $36.95 in midday trading Tuesday.

The one-two punch of the results and Pandit's exit point to what analysts say has been a years-long unsettled atmosphere around the bank.

"What Pandit and Havens did was increase the uncertainty around Citi," said Matt McCormick, banking analyst and portfolio manager at Bahl & Gaynor in Cincinnati, Ohio. "There's a perpetual cloud of uncertainty surrounding Citigroup. There's always turmoil ... that's had to affect the stock price."

Multiple people within the bank, speaking anonymously because they could not discuss it publicly, said Pandit's resignation was a shock and that even senior executives were surprised.

EXPERIENCE QUESTIONS

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 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. Citigroup had to shut down Old Lane the next summer, an early black mark for the executive.

Critics later charged that Pandit was too timid, perhaps even too academic, 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," McCormick said.

Pandit and Havens long have been linked together in their careers, which dampened the surprise around 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 third 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 the company wants to shed.

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 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.

(Additional reporting by Charles Mikolajczak, Phil Wahba, Jed Horowitz, Dan Wilchins, Katya Wachtel and Edward Tobin; Writing by Ben Berkowitz; Editing by John Wallace)