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By William Patalon III
Money Morning/The Money Map Report
Pandit, a former Morgan Stanley (MS) executive who in mid-October was appointed to oversee Citigroup's newly created investment-banking and alternative-investments business unit, remains the front-runner for the open CEO spot at the biggest U.S. bank.
His appointment would fill the opening created by the Nov. 4 ouster of CEO Charles O. "Chuck" Prince III, 57, who left in large part because of spiraling losses from Citi’s credit-related businesses and the growing subprime mortgage crisis. And it would mean that the embattled financial institution’s top spot was filled by an experienced risk manager, albeit one who’s been at the bank only six months and who has zero consumer banking experience.
At Morgan Stanley, Pandit was president and chief operating officer of the Institutional Securities and Investment Banking Group, where he focused on the trading, sales and infrastructure aspects of the business. Before that, he served as the managing director and head of Morgan’s Worldwide Institutional Equities Division, and as the managing director and head of the U.S. Equity Syndicate. Pandit also served on the board of the Nasdaq stock market from 2000 to 2003.
According to a Dow Jones News Service report, the situation remains fluid, and there's no certainty that board members will end up agreeing to name Pandit as the new CEO. While there's strong agreement the former Morgan Stanley executive is right for the job, there are questions about who would then fill his current post, as well as questions about who would then take on the role of chairman, the Dow Jones report stated.
Late Wednesday, the New York Times reported that Citi has also considered General Electric Co. (GE) . Neal, who is also president and chief executive of GE Commercial Finance, hasn’t appeared on any publicly available list of candidates, the Times report said. And other candidates – most notably former Citigroup President Robert Willumstad, who met with the board's search committee the week before last – may still receive consideration.
While the search committee interviewed a number of Citigroup executives for the CEO’s job, Pandit is viewed as the leading internal contender, in large part due to strong backing from former U.S. Treasury Secretary Robert E. Rubin – chairman of Citi’s executive committee and a member of its overall board of directors.
Secondary Moves Required
When Prince was removed and Rubin appointed, Sir Win Bischoff – chairman of Citi Europe and a member of Citi’s Business Heads, Operating and Management Committees – was installed as the "acting" CEO, giving the board-designated special search committee the time needed to look for a new chief executive and a new chairman.
But Rubin – Treasury secretary during the Bill Clinton Administration – doesn’t wish to stay in the chairman’s seat any longer than he must, preferring instead to serve Citi in more of an advisory role, according to published reports. That’s problematic since Pandit – who only joined Citigroup in July when the financial giant finalized a deal to buy Old Lane Partners, his hedge fund – lacks the tenure and career experience to hold down both posts from the start. That leaves the board with one of two options:
- Either persuade Rubin to remain in place for awhile longer.
- Or bring in a new executive from outside Citi to assume the chairman’s role now held by Rubin.
If Citigroup’s board members opt for Pandit as CEO, they must also then decide whom to install in Pandit’s current post. After spending about three months at the helm of the alternative investments unit, which includes Citigroup's private equity and hedge funds, Pandit was elevated in October to run a newly formed institutional-clients group, which merged the unit with Citigroup's investment bank.
Contenders to succeed Pandit include
After suffering losses from the subprime-mortgage disaster, Citigroup recently found that its share price had been halved and that it was starved for capital. Then, even more recently, Citigroup announced that fourth-quarter profit would be reduced by as much as $7 billion, leading to the ouster of CEO Prince.
A Difficult Search
But late last month, Citi received a needed $7.5 billion cash infusion from the Abu Dhabi Investment Authority, an investment arm of Abu Dhabi’s government. The investment will enable the largest U.S. bank to keep paying its $2.16 a share dividend – a promise made by Rubin – while also moving forward with its turnaround efforts. However, the bank now has to find a corporate chieftain with the talents and global connections to engineer the turnaround.
And that hasn’t been easy.
Deutsche Bank AG (DB) Chief Executive Officer , 59, recently spurned the advances of the beleaguered bank, the Financial Times reported, citing an anonymous source. Ackermann "was approached, but said he was not available," the source told the FT.
At a time when Citi executives and shareholders have been pushing the bank’s board to recruit a heavy-hitting outsider who could restore the bank’s credibility with Wall Street, Ackermann had the resume and international credibility the troubled U.S. bank was seeking.
During Deutsche Bank’s most recently completed fiscal year, Ackermann’s total compensation – including salary and bonuses – totaled $19.35 million (13.22 million euros),.
For a corporate turnaround of the magnitude of Citigroup, the personal payoff would likely be much larger. But if a speech he gave at the University of Zurich last Wednesday was any indication, Ackermann may not have liked the odds. In a telling commentary, the Deutsche Bank chief said the credit crisis wasn’t over yet: Banks have yet to fully report their losses from risky credit investments, meaning additional write-downs can be expected as the already troubled credit markets turn even more illiquid as the year draws to a close, he said.
"Money market costs have risen significantly," Ackermann told his audience. "The possibilities for refinancing have become more difficult for some banks."
Ackermann may have merely been the latest industry executive to snub Citi: When Merrill Lynch & Co. Inc. (MER) last month filled its vacant CEO post with NYSE Euronext (NYX) CEO , 52, the move reportedly upstaged Citigroup, which had allegedly been interested in the same executive for its top post.
According to the FT report, there’s been a decided lack of interest among the banking industry’s most-senior – and most-qualified – executives, who generally believe the big U.S. bank faces huge financial problems, including some they believe are insurmountable.
But Ackermann, like many other gloom-and-doomers, may be missing the bigger picture that Contrarian investors are just now starting to see: Citi is a solid turnaround play with a potentially big upside.
To make that prediction a reality, a new management team must be put in place – and quickly. That’s the chief reason “the hope is that it can help drive towards a conclusion," a source said of the board meeting that starts today, the source told Dow Jones. And while a Citigroup official declined comment on the speculation, the news-service source said that Citi’s new CEO will likely be announced this week.
The board is under pressure to act quickly. Investors, analysts and bank insiders say Citigroup is in desperate need of leadership as it tries to navigate tumultuous credit markets that have caused the bank to take billions of dollars in write-downs, with as much as $11 billion in additional write-offs expected in the fourth quarter – bringing the estimated second-half total to $17 billion.
The hunt for the new CEO is being conducted by a panel of four Citigroup directors: Rubin; Time Warner Inc. (TWX) CEO ; Franklin Thomas, a former head of The Ford Foundation; and Alcoa Inc. (AA) Chief Executive . The directors also have been using an executive search firm, Prince Goldsmith LLC, reports state.
News and Related Story Links:
- Money Morning: .
- The Wall Street Journal:
Citigroup Board to Meet
Next Week to Decide on CEO.
- CNNMoney.com: .
- Money Morning News:
Troubled Merrill Lynch Taps NYSE Head John Thain as its New CEO.
Deutsche Bank CEO Says Credit Crisis Not Over Yet.
- Money Morning Investment Research Report:
Citigroup: Why This Turnaround Play Has Legs – Big Ones.
Daily Intelligencer: It’s Good to be Vikram Pandit.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.