Added On: Wednesday, December 12, 2007

Can This 'Genius' save Citi?

On a conference call with analysts, new CEO Vikram Pandit leaves the door open for asset sales at the beleaguered bank

Just over a month ago, when Citigroup (C) began its search for a new chief executive, even Robert Rubin, the former Treasury Secretary and Citi board member, struggled a bit to explain (, 11/6/07) what characteristics the next leader should possess. "It's a bit intangible," he said at the time. "It has to be somebody who can drive the vision, drive the execution."

Now Citi and Rubin have found the CEO they hope can get the troubled financial-services giant back on track. On Dec. 11, Citi tapped Vikram Pandit, an insider who was considered the front runner for the job. Rubin called Pandit a "genius" during a conference call with investors and analysts, and said he had "exceptional insight and strength and a real ability to get things done." Rubin, who oversaw the CEO search, added that, "From the beginning, I thought we may end up where we did."

In addition to the CEO appointment, Citi named Win Bischoff chairman of the board. Rubin, who had served as chairman since the resignation of Charles Prince III a month ago, will return to his position as chairman of the executive committee.

Can Pandit Put Citi on Sound Footing?

It certainly will take exceptional leadership to restore the luster at Citi. The company took a writedown of $6.5 billion in the third quarter and said that it would take an additional charge of $8 billion to $11 billion, because of problems in the credit markets. One analyst who covers the company, Meredith Whitney of CIBC (CB) World Markets, has argued that the company will have to cut its dividend and sell off assets (, 11/26/07) to restore its capital levels.

David Hendler, a senior analyst at CreditSights, says Citi's position may become so "precarious" that it will have to consider merging with a stronger bank (, 12/10/07), such as JPMorgan Chase (JPM).

Pandit said he was honored by the appointment and excited by the opportunities ahead. In the conference call with analysts and investors, he laid out three high-level priorities: improving productivity, positioning the company for the future, and fostering key talent. But he declined to answer questions about specific plans for the future. "It's two hours into this," he said.

Investors Argue for Asset Sales

It's likely that Pandit eventually will sell off some of Citi's assets. Under questioning from analysts, he left the door open to the possibility. When one analyst asked about selling businesses to raise capital, he said, "You've got to give me some time to go through all the businesses we have."

Plenty of investors are pushing for a breakup, as the stock has plummeted 40% this year. William Smith, senior portfolio manager of Smith Asset Management and holder of 70,000 Citi shares, has argued that dismantling the company (BusinessWeek, 11/19/07) would boost the value of the stock. He figures the pieces of Citi are worth as much as $67 a share to investors.

Which businesses could Citi sell? There's been speculation that it could peddle its credit-card operation, investment banking, or even its entire consumer banking operation. Smith figures that the consumer operation is worth $34 to $37 a share, while investment banking is worth $19 to $22.

Most Likely Sale: Credit-Card Business

The logic of a consumer sale is that it would raise plenty of capital for Citi and the area isn't one in which Pandit really has expertise. Analysts on the company's conference call questioned whether the current management team has enough consumer expertise to effectively run the consumer bank. Still, the sale of the consumer operation is unlikely. The business contributes more than half of Citi's overall net income.

The most likely sale is of the credit-card operation. Citi's share in the market has been slipping as rivals such as Bank of America (BAC) have come on strong. And although the unit may be difficult to separate from the rest of the consumer operation, a sale would be possible.

It will certainly take some time for Pandit to move ahead with his strategic plan. But the new CEO sounds determined to make his mark. When one analyst asked what his legacy would be compared with those of his predecessors, he said, "Above all, I want to look back and have people say that guy really executed against the company's potential and the opportunities around the world."


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