By William Patalon III
Money Morning/The Money Map Report
Just six weeks after he took the helm of the biggest U.S. bank – and only one week after Citigroup Inc. (C) reported a $9.83 billion quarterly loss – the embattled lender granted newly minted Citi Chief Executive Officer nearly $27 million worth of stock and 3 million stock options, according to regulatory filings and media reports.
According to a filing with the U.S. Securities and Exchange Commission, Citi awarded Pandit 1.095 million shares of stock as part of his executive-compensation plan. It was part of an executive-officer incentive plan that Citi adopted in 1999, according to the Reuters news service.
Citigroup said Pandit, 50, also received options to buy 1 million shares at $24.40 each, 1 million shares at $30.50 each, and 1 million shares at $36.60 each. Each of these awards vests in four equal-sized annual installments. The higher exercise prices carry respective 25% and 50% premiums over Citigroup's closing share price on Jan. 22, the day the options were granted.
Citigroup shares ended the week at $26.64. At that price, the stock was 52% from their 52-week trading high of $55.55.
Although Pandit's options aren't vested – and can't be exercised – at Citi's mid-afternoon trading price of $28.28 yesterday (Thursday), the first block of options had a paper value of $3.88 million – taking the current value of his compensation package up over $30 million.
The stock award constitutes Pandit's first direct stake in Citigroup shares, the filing shows. Citigroup acquired his Old Lane Partners LP hedge fund firm last summer for about $800 million.
Citigroup also awarded stock, options or both to more than two-dozen other senior executives and directors, other SEC filings on Thursday show. It is expected to disclose 2007 compensation for top executives in a proxy filing later this year.
Although stock awards and stock-option grants often arouse the ire of investors and of shareholder-activist groups, management experts say such components of the compensation package are crucial for two reasons:
- First, they align the financial interests of the CEO and other top executives with the interests of the company's shareholders: Both want the company to perform well financially and want the share price to rise.
- And, second, by making the stock-and-option grants vest in increments over a multi-year stretch, the executive has a long-term stake in the company's success – and is tied to the company for a longer period of time.
Pandit became chief executive after his CEO predecessor – Charles O. "Chuck" Prince III, 57 – resigned under pressure on Nov. 4, largely because of mounting losses from soured loans and complex securities known as collateralized debt obligations.
Citigroup is one of more than 90 U.S. companies expected to face resolutions seeking a greater say for shareholders on pay of top executives at their annual meeting this year. At the company's stockholders' meeting last April, shareholders rejected a proposal that would have given them an advisory vote on pay for Citi executives.
Other executives received Citigroup shares, too, including:
- Sir , 66, who became Citigroup's chairman in December, acquired a net 179,519 shares, worth about $4.4 million under the 1999 incentive plan. This increased his stake in Citigroup to 423,542 shares.
- , 53, who became chief financial officer in March, acquired 377,579 shares worth about $9.2 million, boosting his stake to 655,153 shares.
- , 42, the wealth management chief, acquired a net 320,087 shares worth about $7.8 million, raising her stake to 584,028 shares.
According to Citigroup, the awards to both Bischoff and Krawcheck reflect the withholding of some shares to cover tax payments.
Citi Turn to "Cash Barons" for Latest Bailout
When it announced its fourth-quarter financial results back in mid-January, Citi posted its biggest-ever loss, slashed its dividend 41% and announced that it had raised $14.5 billion to bolster its sagging balance sheet.
For the three months ended Dec. 31, Citigroup reported a loss of $9.83 billion, or $1.99 per share, compared to net income of $5.13 billion, or $1.03 per share, for the comparable quarter in 2006. The results included subprime-related write-downs of $18.1 billion – which were in addition to tens of billions in write-downs the bank had already recorded.
Citigroup also announced a dividend cut of 41% – breaking a promise the interim management team had made to keep the quarterly payout intact.
"Our financial results this quarter are clearly unacceptable," the just-appointed Pandit had said at the time.
Pandit, a former Morgan Stanley (MS) executive, took over the CEO duties in mid-December from Bischoff, who had been acting CEO since Prince's ouster. Once Pandit took the help as CEO, Bischoff took over as chairman from former U.S. Treasury Secretary Robert E. Rubin.
While serving as interim chairman, Rubin, former Treasury Secretary under President Bill Clinton, promised shareholders the bank would not slash its dividend. But with Citi clearly still hurting for capital, it was a promise the bank couldn't keep.
Saudi Prince Alwaleed bid Talal – a well-known Contrarian investor who already holds a 3.6% stake in Citi – boosted his stake in the bank to the 4.9% maximum permitted without triggering a U.S. regulatory review, Bloomberg News reported.
"The fresh capital signals the Prince's continued support of Citi and confidence in its future," P.J. Shoucair, a Riyadh-based investment adviser told Bloomberg News in a phone interview.
Alwaleed bailed out Citigroup-predecessor Citicorp Inc., with a $590 million investment in 1991. That initial investment made Alwaleed Citi's largest individual shareholder and is now valued at approximately $6 billion.
In addition to the capital infusion from Prince Alwaleed, Citi also will receive cash investments from sovereign wealth funds in Singapore and Kuwait, as well as from former Chairman Sanford "Sandy" Weill.
Citigroup already received a $7.5 billion investment from Abu Dhabi Investment Authority (ADIA), the United Arab Emirate's state-controlled sovereign wealth fund, in November. Under the terms of the deal, ADIA's stake will not breach 4.9% and will have no managerial oversight.
News and Related Story Links:
- Money Morning News:
Citigroup Cuts Dividend, Receives Another Capital Infusion; Merrill Gets Cash Boost.
Citigroup swings to loss on $18 billion write-down
- Money Morning:
Citigroup: Why This Turnaround Play Has Legs – Big Ones
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.