Thursday, January 16, 2014
Wednesday, July 3, 2013
DealBook: Citigroup to Pay Fannie Mae $968 Million Over Mortgage Claims
Friday, December 7, 2012
DealBook: Citigroup to Cut 11,000 Jobs and Take $1 Billion Charge
Andrew Gombert/European Pressphoto AgencyA Citibank branch in Manhattan. The bank has been sharply reducing its expenses.1:22 p.m. | Updated
Citigroup announced on Wednesday that it would cut 11,000 jobs, reducing its work force by roughly 4 percent in an effort to cut costs.
Under the reduction, 1,900 jobs will be eliminated in the institutional clients division. Another 6,200 positions will be removed from the bank’s consumer banking business, along with 2,600 jobs in the operations and technology group.
Since 2007, the bank has slashed its workforce by 33 percent, leaving it with about 250,000 employees today.
The reductions at Citigroup come after the bank’s powerful chairman, Michael E. O’Neill, engineered the ouster of its former chief executive, Vikram S. Pandit, and named a handpicked successor, Michael L. Corbat, according to several people close to the bank.
Since the power change in October, which stunned Wall Street, there has been unease throughout the upper ranks of Citigroup, according to the people. Some within the executive ranks have been worried that Mr. O’Neill, acting through Mr. Corbat, would quickly pare down the bank.
“These actions are logical next steps in Citi’s transformation,” Mr. Corbat said in a statement. “While we are committed to – and our strategy continues to leverage – our unparalleled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns.”
The bank said it would take a pretax charge of roughly $1 billion in the fourth quarter and $100 million of related charges in the first half of 2013. In the third quarter, Citigroup reported a profit of $468 million, or 15 cents a share.
When Mr. Corbat took on the role of chief executive in October, he told analysts he intended to continue a strategy at Citigroup of focusing on the bank’s core businesses.
The cuts were made after exhaustive meetings in November involving virtually every head of the bank’s businesses at Citigroup’s headquarters in New York, according to several senior executives at the bank. The mandate was to find ways to reduce costs.
Earlier this week, Mr. Corbat briefed the board about the job cuts.
Citigroup has had a turbulent recent history, after teetering on the brink of collapse during the financial crisis and receiving a $45 billion lifeline from the federal government. After emerging from the financial crisis, it has been sharply reducing its expenses and trying to shed even more troubled assets in an effort to restore the bank to its past profitability.
But those efforts have been dogged by missteps and turmoil. In March, for example, the Federal Reserve dealt a stunning blow to Citigroup when it scuttled the bank’s plans to raise its dividend or increase share buybacks. Shortly afterward in April, the bank’s shareholders, in a rare move, voted against a $15 million pay package for Mr. Pandit.
Executives at Citigroup are still struggling to rein in the bank’s business and work through a mass of bad assets in its Citi Holdings unit.
When Mr. O’Neill joined the board in 2009, he was intent on reducing costs in the bank’s vast operations. Mr. O’Neill has had practice turning around an underperforming bank, having steered Bank of Hawaii to profitability earlier in his career.
His plans, according to several former colleagues, typically involve ruthless cost-cutting, often resulting in bank branches being closed. In its announcement on Wednesday, the bank said 84 branches worldwide would be closed.
The bank’s shares rose about 6 percent by afternoon.
Saturday, October 27, 2012
DealBook: Citigroup Pays Fine and Fires Star Technology Analyst
John Tlumacki/Boston GlobeWilliam F. Galvin, the top financial regulator in Massachusetts.Citigroup paid a $2 million fine and fired a prominent technology analyst after authorities accused the bank of improperly leaking to the media unpublished information about YouTube and confidential research on Facebook‘s initial public offering.
William F. Galvin, the Massachusetts secretary of the commonwealth, accused a junior Citigroup analyst of sharing nonpublic information about Facebook to TechCrunch, a blog focused on the technology world. The disclosure included Citigroup’s private revenue estimates for Facebook, as well as “Investment Risks” and “Investment Positives.”
Citigroup fired the junior analyst in September, according to Mr. Galvin’s order.
In a more surprising move, the bank on Friday also terminated his boss, Mark Mahaney, according to a person briefed on the matter.
“We are pleased to have this matter resolved,” a Citigroup spokeswoman said in a statement. “We take our internal policies and procedures very seriously and have taken the appropriate actions.”
Mr. Mahaney, a star analyst who covered the recent wave of technology I.P.O.s for Citigroup’s San Francisco research team, was not accused of any legal wrongdoing over Facebook’s public offering. The leak came solely from the junior analyst.
Mr. Mahaney was, however, blamed for not thwarting the illegal activity. Mr. Galvin did not disclose the name of the junior analyst.
Mr. Galvin’s order further took aim at Mr. Mahaney for discussing YouTube’s earnings with a reporter from a French magazine, Capital, without permission from Citigroup. The dialogue conflicted with Citigroup’s policy that research analysts receive internal approval before talking to reporters. The bank, like most Wall Street firms, also prevents analysts from expressing a viewpoint on companies unless the information is published in a report.
But ultimately, according to the person briefed on the matter, the decision to fire Mr. Mahaney had less to do with a breach of arcane compliance rules than his perceived cover-up.
The French reporter approached Mr. Mahaney in April seeking projections about YouTube’s revenue and earnings growth — information that Citigroup had not yet published in a report. Mr. Mahaney gave a terse e-mail reply that answered the essence of the reporter’s questions.
But when a bank spokeswoman followed up to remind Mr. Mahaney about seeking approval before an interview, he denied ever e-mailing the reporter. “I won’t respond,” he said, according to Mr. Galvin’s order.
The reporter later informed Citigroup that Mr. Mahaney did in fact respond. According to Mr. Galvin’s order, the analyst then asked bank employees to fudge the timing of the interview, an apparent attempt to avoid blame for not seeking approval.
When told that the accurate time was already submitted, he replied in an e-mail cited in the order: “This could get me into trouble. Shoot.”
It is unclear whether his e-mails amount to legal violations. But securities rules, Mr. Galvin noted, prohibit “unethical or dishonest conduct.”
Mr. Galvin also cited past problems in which Citigroup rebuked Mr. Mahaney for granting a February interview to Bloomberg Radio about Facebook before he officially covered the company. On another occasion this year, Mr. Galvin said, Citigroup cited Mr. Mahaney for not receiving approval before going on Canadian television.
Despite the focus on Mr. Mahaney, the main legal violations stemmed from the disclosure of Facebook information.
In May, the junior Citigroup analyst e-mailed two TechCrunch employees to say “I am ramping up coverage of FB and thought you guys might like to see how the street is thinking about it (and our estimates).” He attached a “Facebook one pager,” that featured an array of confidential information, including Mr. Mahaney’s private revenue estimates meant as an internal guide for the bank’s analysts.
Under securities rules and a nondisclosure agreement with Facebook, Citigroup analysts were banned from “disseminating written research” about the social networking giant until 40 days after the I.P.O. The restriction, which applied to all banks that helped take Facebook public in May, was created to prevent research analysts from improperly promoting companies in a bid to drum up business for bankers.
The rules were reinforced in a landmark 2003 settlement with several banks, including Citigroup. The case, led by a former New York attorney general, Eliot Spitzer, built a Chinese wall between Wall Street research analysts and investment bankers.
A TechCrunch employee sought to post the document on the Web, but the junior analyst balked.
“My boss would eat me alive,” he said.
Sunday, October 21, 2012
DealBook: Citigroup Secretary Accused of Embezzling From Boss
Arthur Brower/The New York TimesWilliam Salomon before the quote board at Salomon Brothers & Hutzler in 1968.At 98, a venerable banker still goes to the office, even after the name of the storied investment firm he once ran has faded from Wall Street.
William R. Salomon uses space and a secretary paid for by Citigroup, which swallowed his firm, Salomon Brothers, in a merger. It is the least that the banking giant can do for the son of one of three brothers who started the firm a century ago.
But federal prosecutors say that Mr. Salomon’s longtime secretary did him no favors. Karen R. Febles, his former assistant at Citigroup for over a decade, has been charged with stealing nearly $2 million from him, according to a person with direct knowledge of the case.
Court papers filed by the government in February accused Ms. Febles of defrauding a retired bank executive but kept the name of the bank and the executive confidential. The victim is Mr. Salomon, according to this person, who spoke only on the condition of anonymity.
A Citigroup spokesman, Mark Costiglio, said the bank “informed law enforcement immediately upon discovery of suspicious account activity by this former employee, and we have cooperated fully to ensure that justice is done.”
Matthew Reilly, a spokesman for the United States attorney in New Jersey, whose office brought the case, declined to comment.
Ms. Febles, 47, of Palisades Park, N.J., has pleaded not guilty and is set to stand trial in Federal District Court in Newark on Nov. 13.
Her lawyer, Edward J. McQuat, said that she “was not responsible for the government’s allegations and we hope to convince a jury of that.”
Ms. Febles is hardly the first executive assistant accused of fleecing a corporate boss, a crime that investigations and securities firms say happens with some frequency. One of the more memorable incidents happened in 2002, when a secretary who worked for E. Scott Mead, a top banker at Goldman Sachs in London, was imprisoned after looting more than $5 million by wiring blocks of his money to bank accounts in Cyprus.
Experts say that these incidents arise for several reasons. Investment bankers and corporate lawyers are often on the road, working 60 to 80 hours a week, and they give secretaries a lot of discretion. They also say that class envy often factors into these crimes. And in cases like the one involving Mr. Salomon, elder abuse can play a role.
Bill Cunningham/The New York TimesWilliam Salomon, right, the founder of Salomon Brothers, the New York investment banking firm, with his wife, Virginia in 2005.“People put an excessive amount of trust in individuals who have fiduciary duty and signing power over their accounts,” said Daniel E. Karson, chairman of Kroll Advisory Solutions, a corporate investigations firm. “And part of what goes into the larcenous thinking is that this is a wealthy person who isn’t counting their nickels and dimes and will never miss the money.”
Prosecutors say that Ms. Febles worked for Mr. Salomon from 2000 until September 2011, answering his phones, scheduling his appointments and paying his bills. Mr. Salomon authorized Ms. Febles to prepare personal checks that he would sign. After he signed the checks, many of which were made out to “cash” or “petty cash,” Ms. Febles would alter the withdrawal amount and deposit excess funds in her own bank account, according to the government’s complaint.
In 2010, for example, Mr. Salomon’s expenses, paid in cash, totaled about $450,000, but checks in excess of $1.1 million were issued that year from his bank accounts, the complaint said. Prosecutors say that Ms. Febles was the only other person given access to his accounts.
The money, totaling $1.8 million, is said to have been stolen in small increments over a period of years. In one instance, prosecutors say, Ms. Febles made out a check for “nine hundred” dollars, but when the check was negotiated, the words “nine thousand” were added before the words “nine hundred.”
Ms. Febles lived more like a Wall Street banker than a secretary who earned no more than $93,000 a year, according to court filings. Last year she paid more than $50,000 cash for a Range Rover and about $35,000 for a Mercedes-Benz. Recent cruise vacations cost her $45,000. She paid for such extravagances, the government says, by skimming from Mr. Salomon’s fortune.
Born and raised in New York City, Mr. Salomon, who is known as Billy, skipped college and joined his father’s firm at 19. While serving as senior managing partner for 15 years during the 1960s and 1970s, Mr. Salomon orchestrated the firm’s transformation from a small bond-trading house to one of the country’s largest and most profitable investment banks.
“Pleasant, well-tailored and casual, it would be easy to think of him as another example of Wall Street nepotism,” wrote The New York Times of Mr. Salomon in a 1965 profile. “Colleagues and competitors dispel that notion.”
Among Mr. Salomon’s protégés was an ambitious young trader named Michael R. Bloomberg. Another was John H. Gutfreund, who succeeded him in 1978 as head of the firm. The newly minted chief executive of Citigroup, Michael L. Corbat, also began his career at Salomon.
Mr. Gutfreund presided over Salomon during a tumultuous period that ended in a scandal, drawing charges that the firm rigged the Treasury bond market. Salomon’s brash, risk-taking culture under Mr. Gutfreund was chronicled in “Liar’s Poker,” a tell-all memoir by Michael Lewis, who worked as a bond salesman at Salomon before he became a writer.
In a 1991 interview with The Associated Press, Mr. Salomon, embittered after a falling out with Mr. Gutfreund, lamented that the firm had lost its way.
“In my time, the customer was God and we would no more take advantage of him than we’d fly out the window,” Mr. Salomon said. “We wanted to maintain a high ethical standard.”
Salomon became swept up in the financial services mega-mergers of the late 1990s. The insurer Travelers acquired the firm in 1998 and later that year combined with Citicorp, which would become Citigroup.
Through it all, Citigroup provided Mr. Salomon with a Midtown Manhattan office and a secretary. A fixture of the Upper East Side old-money crowd, Mr. Salomon lives in a Park Avenue apartment and has an oceanfront home in Southampton on Long Island. He was widowed in 2008 when his wife of more than 70 years, Virginia Foster Salomon, died. It was around that time, the government says, that Ms. Febles started embezzling from him.
Mr. Salomon, who, despite his advanced age is said to have all of his mental faculties, did not return multiple calls seeking comment. Another assistant now answers his phone.
Thursday, October 18, 2012
DealBook: Citigroup Investors Hope for Clarity on Bank’s Path, Quickly
Jemal Countess/Getty Images for TimeVikram Pandit did not overhaul Citibank fast enough, or aggressively enough, in many investors’ eyes.As Michael L. Corbat takes up the reins at Citigroup, analysts and investors have a message for him: Shrink your bank fast, and be a lot more transparent as you do so.
Mr. Corbat takes over from Vikram S. Pandit as chief executive of Citigroup four difficult years after the financial crisis. In that period, Mr. Pandit steadied the banking behemoth and tried to focus Citi on the businesses he felt it could do best in. But, increasingly, many investors felt Citi’s overhaul wasn’t bold or quick enough.
“Citigroup has acted as if it’s too big to care,” said Mike Mayo, an analyst with CLSA, a brokerage firm. “That means that they are too big to be sensitive to shareholder concerns.”
Dissatisfaction with Citigroup’s progress motivated shareholders to vote against a $15 million pay package for Mr. Pandit in April. That vote came soon after the Federal Reserve turned down Citigroup’s plans to pay out capital to shareholders, a stinging indication that regulators still weren’t comfortable with the bank.
Since those expressions of discontent, Citigroup’s shares are sharply higher, though they are still down 89 percent since Mr. Pandit took over in December 2007. The stock trades at a pitiful valuation, reflecting two dominant views in the markets: Citigroup’s transformation has a long way to go, and its financial statements can be opaque.
The New York TimesThough relatively unknown to shareholders, Mr. Corbat starts with a reputation as an assiduous executive with a deep knowledge of Citigroup, where he has worked for nearly 30 years. He even got good reviews from people who have been skeptical about Citigroup and its management. Sheila C. Bair, the former head of the Federal Deposit Insurance Corporation, who clashed with Mr. Pandit, knew Mr. Corbat from interactions during the financial crisis.
“He was involved in several meetings with us,” said Ms. Bair, adding, “He was prepared and he knew his stuff.”
Now, some analysts believe Mr. Corbat could open the door to more radical moves at Citigroup.
“I think this is a real, long-term positive for Citi,” said Gerard Cassidy, a banking analyst with RBC Capital Markets.
Still, Mr. Corbat may have to impress quickly, given the pent-up frustrations among shareholders. His first public conference call as chief executive on Tuesday was not encouraging on that front. He seemed to disappoint analysts who wanted to hear Mr. Corbat express a greater desire to change things. Instead, he said, “Today’s changes do not alter the strategic direction of Citi, which we believe is a good one.”
In a memo to employees on Tuesday, Mr. Corbat sounded more emphatic. He wrote, “We must deliver sustained profitability, improved operating efficiency and shareholder returns.”
Part of Mr. Corbat’s job will be getting more out of Citigroup’s best-performing operations. Many of its international lending businesses do consistently well, and he may look for ways to make sure investors give greater recognition to this strength.
One idea may be to sell minority stakes in those operations in foreign stock markets, something that Spanish bank Santander has done recently with its Mexican unit. If those shares perform well, it would highlight the value in those businesses and perhaps lift Citigroup’s stock. Asked about this idea Tuesday, Mr. Corbat said, “I’ll look at those things and see what the numbers say.”
The burning question, though, is whether he has the resolve to get out of businesses that the bank doesn’t excel in, even if the near-term costs are high. Mr. Cassidy, the analyst, said Mr. Corbat should sell any business line that could not achieve the sort of returns that shareholders expected. Citigroup’s chairman, Michael E. O’Neill, aggressively reduced the size of Bank of Hawaii when he led it.
“He shrunk that bank by 30 percent; that’s what Citi has to do,” Mr. Cassidy said.
In particular, some investors would like Citigroup to be quicker about selling assets in Citi Holdings, the bad bank that Citigroup set up for its unwanted and loss-making assets. Mr. Corbat ran Citi Holdings until the end of last year. Faster sales might mean Citigroup would not get the best price possible for the $171 billion in assets in Citi Holdings. That could lead to higher losses when sales took place.
But selling assets more quickly could free up the capital the bank holds there. In turn, that could lead to a big improvement in Citigroup’s regulatory capital ratios, which investors watch very closely. Banks that can show they have little trouble meeting such ratios often get better valuations on their shares.
Citigroup’s investment bank is the other obvious target for shrinkage. Right now, it is enormous. The “securities and banking” division at Citigroup has $903 billion of assets. That’s only slightly less than Goldman Sachs’s assets. And Citi’s investment bank’s revenue has been uneven since the financial crisis.
The unit is also seen as a black box, something Mr. Corbat will have to tackle if he wants to regain investors’ confidence, analysts say. Citigroup’s disclosures aren’t as detailed as those of some other banks. For instance, each quarter, Goldman Sachs releases a critical number that shows how much profit it makes on its capital.
But Citigroup doesn’t do that for its investment bank; it simply doesn’t tell outsiders how much capital it has deployed in that unit. As a result, it could be making unproductive investments in Wall Street operations without shareholders knowing. This could be true in other business lines, as well.
The quandary for Mr. Corbat may be that, if he increases disclosure, investors may balk at any alarming numbers and dump the stock. Even so, he may have to risk that outcome.
“They have to open up the kimono,” Mr. Cassidy said.
Perhaps Mr. Corbat will become Citigroup’s quiet revolutionary, a leader who is prepared to make bold moves to win over, and win back, shareholders. He did offer up one button-down remark Tuesday that could provide a tidbit of hope to shareholders who are relying on him to redouble Citigroup’s remodeling. “I wouldn’t minimize the impact you can have on a place,” he said.
Wednesday, October 17, 2012
DealBook: Pandit Steps Down as Chief of Citigroup
11:58 a.m. | Updated
Citigroup’s board said on Tuesday that Vikram S. Pandit had stepped down as chief executive, effective immediately, and would be succeeded by the head of the bank’s European and Middle Eastern division, Michael L. Corbat.
His resignation comes after long-simmering tensions with the bank’s board. In particular, the board’s chairman, Michael E. O’Neill, had been increasingly critical of Mr. Pandit’s management, according to several people close to the bank.
Mr. Pandit was seen by some board members as not being able to quickly and effectively execute strategy, lurching from crisis to crisis, these people said. There were concerns he lacked the breadth of vision needed to turn the bank around. “He was considered more technically skilled,” one Citi executive said.
John P. Havens, the bank’s president and a longtime associate of Mr. Pandit, has also resigned.
Some at the bank said on Tuesday that they believed Brian Leach, the bank’s chief risk officer, could depart soon as well, especially because he was extremely close to Mr. Pandit.
Inside the bank, the news was greeted with shock. A huge gasp was audible on the trading floor in Manhattan as employees watched the news on monitors showing CNBC, according to several employees. When Mr. Havens’s resignation was reported, some employees on the trading floor jumped up from their chairs.
Hiroko Masuike for The New York TimesMichael Corbat was the head of Citigroup’s European and Middle Eastern division.
The surprising departures come just a day after the firm reported stronger-than-expected third-quarter earnings. Excluding a number of one-time charges — including a big loss tied to the continued exit from the Smith Barney brokerage — Citigroup earned $3.27 billion, or $1.06 a share. That exceeded analysts’ average estimate of 96 cents a share.
“There is nothing better than our third-quarter earnings announcement to demonstrate definitively that we have turned this company around,” Mr. Pandit said in a memo to employees.
Yet those results paled in comparison with the earnings announced on Friday by JPMorgan Chase and Wells Fargo. Spurred by exceedingly low interest rates, and the Federal Reserve bond-buying program, there has been a recent resurgence in mortgage lending, bolstering those banks.
Yet Citigroup appeared to have been caught flat-footed. In its earnings call on Monday, John Gerspach, the bank’s chief financial officer, intimated that the bank was slow in staffing up to deal with the mortgage activity.
Within the board, some believed Mr. Pandit’s lack of foresight and planning contributed to the bank’s missed opportunity, the people close to Citigroup said.
Shares of Citigroup were up nearly 1 percent by midday on Tuesday.
Discussions to line up a ready successor to Mr. Pandit have been in the works at Citigroup over the last year, according to several people familiar with the matter. One leading candidate to succeed Mr. Pandit had been Jamie Forese, head of securities and banking. Inside the bank, however, Mr. Pandit had expressed his commitment to stay at the helm of the bank until it was on firmer footing.
During Mr. Pandit’s tenure, which began in December 2007, the bank struggled through enormous market upheaval and needed several rescue lines from the government. But it has slowly recovered, in large part by shedding big portions of its businesses. Among them is Smith Barney, the brokerage operation that is being absorbed by Morgan Stanley.
“Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm at Citigroup,” Mr. Pandit said in a statement. “I could not be leaving the company in better hands.”
With his departure, just two men who ran Wall Street banks during the financial crisis remain in their posts: Jamie Dimon of JPMorgan Chase and Lloyd C. Blankfein of Goldman Sachs. Both firms rebounded from the upheaval much more quickly and strongly than Citigroup.
Mr. Pandit, an immigrant from India who quickly ascended the ranks of Morgan Stanley before turning to hedge funds, was long seen as an unusual choice to lead Citigroup. But the banking giant purchased Old Lane, his investment firm, and then tapped him in December 2007 to do what a succession of leaders could not: push the firm back to profitability.
Born of a string of acquisitions by Sanford I. Weill, Citigroup initially seemed like an imposing colossus on Wall Street, combining investment and consumer banking, hedge fund services and insurance. But the firm whose birth presaged the fall of decades-old banking regulations proved unwieldy to manage, with a labyrinthine bureaucracy and underperforming divisions.
Under Charles O. Prince III, Mr. Pandit’s predecessor, the firm announced more than $18 billion in write-downs because of souring investments in complex mortgage securities known as collateralized debt obligations.
When stepping down, Mr. Weill was very deliberate in choosing his successor. Later, he regretted, privately, that he had not spurred more competition before tapping Mr. Prince.
In an acknowledgment of the difficult task ahead, Mr. Pandit said that he would take a token $1 annual salary until the firm began earning profit again. But the untested chief executive struggled with turbulent markets, culminating in the financial crisis that left Citigroup in need of a $45 billion bailout from the government.
He quickly adopted a deferential tone to Congress and regulators, backing tougher banking rules and moving quickly to shed nonessential businesses like Smith Barney. His ultimate goal had been to transform Citigroup into a smaller bank that focused on safer investment banking and consumer and corporate lending.
Mr. Pandit first brought Citigroup back to profitability two years ago, and by the end of 2010 the government had cashed out its remaining investment in the firm, earning a $12 billion profit for taxpayers. That performance drew praise from many within the firm’s ranks: “The man deserves to be paid,” Richard D. Parsons, the bank’s then-chairman, told New York magazine that year.
The bank’s shareholders were less certain about that, still dissatisfied with a firm whose stock had fallen 89 percent since he took over. They vetoed a $15 million pay package for Mr. Pandit in April, in the first major rebuke against the chief of a major financial firm.
Often shareholders find themselves on the hook for millions of dollars in exit payments to executives with so-called golden parachutes, ironclad agreements that entitle them to big payouts on their way out the door. Yet neither Mr. Pandit nor Mr. Havens had employment agreements, according to regulatory filings reviewed for DealBook by Disclosure Matters, a company that specializes in analyzing corporate documents.
Other, more limited agreements with the men also lack the kinds of provisions that are often used to guarantee payouts for exiting executives. A “key employee” profit-sharing agreement with Mr. Pandit filed in May 2011 says he generally “shall not be entitled to any payments pursuant to the plan” if his employment terminates before May 2013,except in the case of death or disability. Similarly, option and stock grants made last year suggested that Mr. Pandit would forfeit most of those awards on departure.
The lack of an employment agreement does not necessarily mean Mr. Pandit is leaving empty-handed. Departing executives often receive special exit packages, negotiated at the time of departure or soon after; these sometimes are not disclosed for days or even weeks. But without such an agreement, Mr. Pandit is likely to have to give up 333,333 options and 240,732 shares awarded last year.
Citigroup did not respond to a request for comment on these disclosures.
As head of Citigroup’s business in Europe, the Middle East and Africa, Mr. Corbat represents what many on the board consider the bank’s new direction, according to several people familiar with the matter.
The bank has been working to focus its growth on international markets that are not riven by the same problems as the United States.
Also adding to Mr. Corbat’s desirability, he helped wind down some of the soured assets in Citi Holdings.
As news of the management upheaval spread throughout the ranks at Citigroup on Tuesday morning, some employees pointed to Mr. Corbat’s elevation to chief executive as a censure of Mr. Pandit’s leadership.
Mr. Corbat, in an internal memo to employees on Tuesday, said he would begin by immersing “myself in the businesses and review reporting structures.”
But some employees noted that Mr. Corbat had already indicated change ahead. In the memo, he said: “These assessments will result in some changes, and I will make sure to communicate these changes with you as decisions are made so that you are informed and updated.”
The bank has struggled to make up for lackluster revenue. In March, Citigroup was waylaid by a decision from the Federal Reserve to reject the bank’s proposal to buy back shares and increase its dividend.
Susanne Craig contributed reporting.
DealBook: In Citigroup Shakeup, a New Show of Power by Boards
Shannon Stapleton/ReutersMichael O’Neill, the chairman of Citigroup, in 2009.The departure of Vikram S. Pandit shows clearly who is in charge of Citigroup: the board of directors. For good or for bad, boards are increasingly taking charge of corporate America. The reign of the imperial chief executive is over.
No reason was given in the news release announcing that Mr. Pandit had stepped down. And while the reports of what happened behind the scenes will slowly emerge as each side spins its story, there is no doubt that this was an unexpected and abrupt resignation. He left without the words that you usually see in such announcements about “spending more time with your family” or even language about “retirement” — and just as his compensation was beginning to rise again into the tens of millions of dollars.
The new show of power by the board is a remarkable turn of events. In the years leading up to the financial crisis, boards were criticized for letting chief executives rule unchecked. Remember, Citigroup was the place where Sandford I. Weill reigned supreme for years. It led to Charles O. Prince III, who lacked the ability to run the financial conglomerate but also lacked a board that could appropriately supervise and monitor his actions let alone make a decision about the direction of the company. (Mr. Prince was the one, you may recall, who said in the years leading up to the financial crisis that “as long as the music is playing, you’ve got to get up and dance.”
Board supremacy is a general trend. In the wake of the financial crisis, the big banks have been forced to reconstitute their boards, with Citigroup and Bank of America at the top of the list. But others like Goldman Sachs have also been pushed to bring in more competent people. The new directors are much more aware of what happened in the years leading up to the financial crisis, and to take action.
Not only have boards been pushed to bring in new, more active people, political and market forces are pushing boards into a greater role in the banks themselves. The Dodd-Frank Act charges boards with an enhanced duty to monitor systemic risk at financial institutions and requires the creation of risk management committees made up of independent directors for these banks.
Corporate governance advocates, meanwhile, are pushing boards to take a more active role not only in the hiring and firing of the chief executive but in the operation of the company.
The consequence is that not only do boards have more legal responsibility to run the company, they are being exhorted to do so. Boards are listening. The change is real and amply underscored in the shakeup at Citigroup. Mr. Pandit’s resignation is remarkable because it goes beyond what had been the traditional board role, which has been to stand back and hire or fire the chief executive. Here, the board appeared to want to change the course of Citigroup’s operations against the wishes of Mr. Pandit.
The lesson of Pandit’s departure is that boards are now expanding their focus and looking to veto or change a company’s direction and operations. And that it is happening at a place like Citigroup, where for years being a director was more like being a minor royal – not much responsibility, but nice perks — is doubly remarkable.
The real question though is whether boards can run companies better than chief executives can. Boards comprise part-time members who don’t have the same interests at stake. They are also committees and thus may lack the wherewithal to properly execute. In fact, some blame the financial crisis on the failure of boards to correctly monitor financial institutions. But that is a developing story.
For now, we’re now in a new world where the boards rule and are unafraid to exert their power. Chief executives, beware.