Issue of the week: What’s next for Citigroup?

last updated 8 January 2015

“For all its many flaws, Citigroup is never dull,” said The Economist. CEO Vikram Pandit’s abrupt resignation last week, reportedly after he clashed with Citi’s board of directors, shocked Wall Street, particularly since the bank is finally showing signs of recovery. Pandit’s defenders say he shored up a “tottering institution at a time of crisis” and deserved more than an unceremonious exit. But the board apparently thought Pandit wasn’t overhauling the bank fast enough, and angry shareholders blamed him for overseeing an 89 percent plunge in the share price. Pandit was an “unlikely choice” from the beginning, said Christopher Matthews in Time.com. A “bookish Indian immigrant known for his financial acumen” rather than operational experience, he never truly fit in among Wall Street’s “white, glad-handing alpha males.” He deserves some credit for steering Citi through the financial crisis, but ultimately his “failures proved too numerous for the board to abide.”

His successor faces a daunting to-do list, said Nick Summers in Bloomberg Businessweek. Michael Corbat, a little-known Citi veteran of three decades, will be under intense pressure to streamline the bank’s sprawling businesses and mend fences with regulators in Washington. But his toughest challenge will be draining the “political swamp” of the bank’s internal culture, in which shoddy oversight, high pay for subpar performance, and a lack of transparency flourished. Corbat’s arrival “might just be a turning point” for this “great big beleaguered bank,” said Gretchen Morgenson in The New York Times. Citigroup is finally being run by an actual banker, not a former hedge fund manager like Pandit or a lawyer like Pandit’s predecessor, Charles O. Prince III. If Corbat can cut “this behemoth down to a manageable size,” shareholders and taxpayers alike will have reason to cheer.

They’ll “have to be patient,” said Felix Salmon in Reuters.com. “It’s pretty clear who’s really in charge of setting the strategy at Citigroup these days, and it’s not Mike Corbat.” It’s Michael O’Neill, the chairman of the board, who may not have downsizing in mind. He appears instead to realize that “Citi would be a miserable failure if it were to shrink: It doesn’t have a scrappy mind-set, and it never will.” It seems to me that O’Neill wanted Pandit gone not because he had the wrong strategy, but because he “wasn’t actually a very good manager.” So anyone expecting Corbat to execute “a magical overnight transformation” of Citi is bound for disappointment.