Pandit buys time with Citi reshuffle

July 9, 2009

— Peter Thal Larsen is a Reuters columnist. The views expressed are his own —

Notch up a win for Sheila Bair. It’s hard to see the latest management shake-up at Citigroup as anything other than an attempt to placate the combative chairwoman of the Federal Deposit Insurance Corporation.

It should help end a regulatory turf war over Citi’s future and buy chief executive Vikram Pandit some time to show he is getting to grips with the ailing megabank. But his corporate life expectancy is still measured in months, not years.

By bringing in Eugene McQuade to run the Citibank division, Pandit has addressed one of Bair’s main criticisms — that Citi’s team of former investment bankers lacks commercial banking experience . McQuade, an industry veteran, will have the key task of getting to grips with Citi’s deteriorating retail and small-business loan books.

At the same time, Pandit is moving Ned Kelly out of the chief financial officer’s position less than four months after putting him in the job. Citi on Thursday tried to present the switch as an expanded role for Kelly, who will take on responsibility for strategy and mergers and acquisitions.

However, he will become a vice chairman — a title Wall Street traditionally awards to those it has stripped of executive power. It’s also worth remembering that Kelly last month responded to reports of Bair’s concerns by pointing out that the FDIC was Citi’s “tertiary regulator”, behind the Office of the Comptroller of the Currency and the Federal Reserve.

Pandit should now be allowed to get on with implementing his strategy, which is to return the bank to its roots as a commercial and retail lender similar to John Reed’s Citibank before it merged with Sandy Weill’s Travelers. This makes sense. But Pandit has to do this while a severe recession undermines Citi’s profits.

At the same time, he has to sell, spin off or wind down more than $700 billion of non-core and troubled assets parked in Citi Holdings. It is hard to imagine that this can be achieved without further accidents.

Pandit may have bought himself some breathing space, but he is still on probation. It is hard to see how replacing him would achieve anything other than prolonging the uncertainty. Nevertheless, any additional setback to Citi’s recovery is sure to mean that the next major reshuffling memo will feature the departure of Pandit.

(Editing by Martin Langfield)


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