Citigroup CEO Vikram Pandit’s sudden exit rattles Wall Street
NEW YORK — Wall Street suffered another blow as one of its highest-profile leaders abruptly resigned, a reflection of the persistent difficulties plaguing the banking industry as it tries to recover from the financial crisis four years ago.
Citigroup Inc. Chief Executive Vikram Pandit stepped down Tuesday from the top job at the No. 3 U.S. bank, along with President and Chief Operating Officer John Havens. The surprise departures were blamed on long-simmering conflicts between the two executives and board members.
The unorthodox manner in which Pandit resigned — less than 24 hours after Citigroup reported earnings but gave no hint of the coming departures — points to the stress in boardrooms across Wall Street as banks struggle to reinvent themselves in a new era of reduced profitability and stringent regulations.
The drama has potential repercussions nationwide because the health of the biggest banks is crucial to helping the limping economy rebound. The financial wherewithal of so-called too-big-to-fail banks is under intense scrutiny among lawmakers in Washington.
“It is a black eye for Wall Street,” said Michael Mayo, an analyst at CLSA in New York. “It’s definitely another dysfunctional event on Wall Street that will loom large in the mind of the person on the street.”
The surprise resignation comes on the heels of a series of setbacks at big banks this year that have raised questions about the industry’s ability to manage itself in the aftermath of the global crisis that nearly capsized the industry.
JPMorgan Chase & Co., which emerged from the financial crisis virtually unscathed, suffered an embarrassing $6-billion trading loss from risky derivative bets. Wells Fargo & Co. was slapped this month with a government lawsuit alleging mortgage fraud stemming from the real estate bubble. And major international banks have settled money-laundering and rate-rigging allegations.
Pandit’s departure rattled Wall Street, in part because the reasons behind it remained murky.
He “gave every indication that he was expecting to be there for the next five years and was in full control of the organization,” said Richard Bove, an analyst at Rochdale Securities. “No one, but no one, expected what happened.”
Michael O’Neill, Citigroup’s chairman, said in a conference call with analysts that the board wants to maintain the company’s current strategy. But when asked why the CEO left, O’Neill simply said Pandit submitted his resignation and the board accepted it.
Pandit, 55, reportedly told people inside and outside the bank that the idea to step down was his own. O’Neill said Pandit’s succession has been in the works for two years, and that incoming CEO Michael Corbat — a 29-year veteran of Citigroup — knew he was a candidate to take the company’s helm.
Whatever the cause, Pandit played a starring role in one of the most turbulent periods in U.S. banking history.
A somewhat unlikely candidate to lead Citigroup, he got the job in part because the bank had purchased his hedge fund. However, Pandit was generally credited with stabilizing the institution and restoring its profitability.
He took over at virtually the worst moment — just as the financial crisis was striking in December 2007.
Pandit’s five-year tenure at the bank was anything but smooth, and Citigroup retains its years-long reputation as a lumbering giant that can’t put all the pieces together.
Pandit suffered through a brutal shareholder revolt over executive pay during the company’s annual meeting, with investors voting against the bank’s decision to lavish him with a $15-million pay package in 2011. He was also heavily criticized when the Federal Reserve rejected the bank’s plans to reinstate a dividend because the company still was not well capitalized.
Meanwhile, Pandit was second-guessed for a decision to sell Citi’s Smith Barney brokerage unit to Morgan Stanley in a deal that caused Citi to take some $3 billion in write-downs.
Investors also soured on Pandit for his inability to push Citi’s stock price higher. Shares plummeted during the global financial crisis, and the bank has managed only a meager recovery since then. Its share price has fallen 94% from its December 2006 peak, far worse than many competitors. On Tuesday its stock rose 59 cents, or 1.6%, to $37.25.
The company conducted a “reverse” stock split last year that boosted the share price from roughly $4.50 to $45. Though the move was only cosmetic and did not change the shares’ underlying value, it allowed the company to avoid the embarrassment of a single-digit stock price.
The bank’s surprising shake-up gave fodder to those who are calling for a far broader restructuring of Wall Street.
“It’s not just too big to fail — it’s too big to manage,” said Dennis Kelleher, chief executive of the investor advocacy group Better Markets in Washington. “This isn’t how you change leadership at one of the too-big-to-fail banks that’s been a disaster for itself, for our financial system and for the taxpayers of America.”
Indeed, big banks are being targeted in a number of investigations that focus on their role in the financial crisis and housing collapse.
New York Atty. Gen. Eric Schneiderman hit JPMorgan with a lawsuit stemming from mortgage bonds sold by Bear Stearns, the investment bank that JPMorgan purchased when it ran into trouble during the financial crisis. Earlier this year, JPMorgan surprised Wall Street by announcing that a trader who garnered the nickname “the London Whale” had lost billions of dollars on wrong-way derivatives bets.
And in the latest in a long series of lawsuits against mortgage lenders, federal prosecutors in Manhattan last week accused Wells Fargo of defrauding the Federal Housing Administration of hundreds of millions of dollars by wrongly certifying that loans were good enough to be insured by the FHA.
The banks have also been the target of investigations by the government and international regulators into allegations that they rigged the London Interbank Offered Rate, or Libor, a key interest rate that helps determine borrowing costs for consumers and corporations. The biggest casualty of the investigations has been Barclays, the giant British bank, which ousted its chief executive and other top bankers because of the probes.
And now Citigroup’s hasty management change is added to that list. Analysts, who were caught off guard, expressed dismay that there wasn’t even a traditional transition period to introduce new management — and said that could be a symptom of a bigger problem.
“The man or woman on the street would at least give two weeks’ notice,” Mayo said. “I’m not sure that even took place here.”
Times staff writer E. Scott Reckard and researcher Scott Wilson contributed to this report.
