Citi’s continuing woes

By Felix Salmon
June 5, 2009

I’m glad that the FDIC, which is now invested to the tune of hundreds of billions of dollars in insuring Citigroup’s toxic assets, is taking its regulatory responsibilities seriously. Citi’s childish response, however, makes it clear that there’s something seriously wrong with its senior management:

Citigroup officials have argued that Ms. Bair is overstepping her authority.

“The FDIC is our tertiary regulator,” behind the Office of the Comptroller of the Currency and the Federal Reserve, said Ned Kelly, Citigroup’s chief financial officer.

This is jaw-dropping stuff, especially when we read later on in the article that, miffed about the Wachovia takeover, Citi executives, channeling their inner 13-year-old girls, refused so much as to talk to the FDIC for months.

But really, Ned, the OCC? Surely you can’t be serious. The OCC is a soon-to-be-abolished irrelevance.

I do understand that it’s frustrating for Citi executives to have to deal with far too many regulators — Kelly could easily have added the SEC to his list, for starters — but the FDIC’s billions are the only reason his bank is still alive, and the FDIC is clearly a much more important regulator than the OCC, whatever the official chain of priority says — just as the New York State attorney general turned out to be much more important when it came to conflicts in the research departments than any federal institution.

It also seems that the ultra-slow-motion defenestration of Vikram Pandit is inching along:

Federal officials have reached out to Jerry Grundhofer, the former U.S. Bancorp CEO who recently joined Citigroup’s board, to gauge his interest in the top job, according to people familiar with the matter. Mr. Grundhofer, who didn’t return calls seeking comment, is well-regarded in the industry for steering U.S. Bancorp to profitability while avoiding the risky lending that hurt Citigroup and many other banks.

The replacement of Pandit by Grundhofer would be a good idea, since Pandit seems to be better at announcing grand plans and shake-ups than he is at implementing them. Citi managed to emerge with a very small $5.5 billion hole from the government’s stress tests on the grounds that it was shedding huge amounts of “legacy” assets — but it isn’t, and the FDIC is getting understandably impatient.

One of the biggest issues here is that the FDIC is clearly minded to put Citigroup on its “problem list”, which is confidential — the agency only releases the aggregate assets of the banks on the list, and doesn’t release their names. Except the aggregate assets of the problem list right now are a fraction of Citi’s total assets, which means it would be obvious to everybody the minute that Citi was added. Once again, Citi has proved itself too big for traditional bank-fixing solutions. Zero Hedge is right: the market seems decidedly overoptimistic on the Citi front right now.

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