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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Citi never sleeps with the fishes…why don’t the Feds, et al, force the return of Sandy Weil to manage his own creation? Since Sandy was such a great dealio-maker, of course, he’ll know the best means to unwind this beastly monstrosity. I’ve read too many instances just surrounding legacy costs on their IT infrastructure; it is an absolute joke. Then there’s the managerial hierarchy…another joke.

Citigroup seems to be examples A-D of what went wrong with the repeal of Glass-Steagall. Pandit does seem suited to lead, but his first CEO position appears too much for him to chew. Jerry G of USB must be crazy…you just know he won’t get paid for what this job needs done.

Posted by Griff | Report as abusive

How appropriate that the CFO of this bunch of thieves should be named Ned Kelly:

Posted by Thomas Pindelski | Report as abusive

Every Friday afternoon, I still hope that I will hear on the news that Citi and BoA have been taken over by the FDIC. A man can dream…

But Obama, alas, has clearly put his chips on “muddle through,” instead of my preferred strategy of “take your medicine.” So I guess I should really be pinning my hopes on him being right and me being wrong. I’m finding that hard to do.

Every time a small bank fails and is forced to face the music, instead of getting bailed out like the big players, we move closer to a financial landscape made of up nothing but “too big to fail” megabanks that can’t be effectively regulated, oh mercy me no, because _that_ would be “socialism.”

Posted by Craig | Report as abusive

What is the goal of using words like “defenestration” in communication? To sound pompous? To annoy your readers?

Posted by defenestrationer | Report as abusive

The reeling of Citi makes one wonder: what may have become of Citi if Jamie Dimon, who was being groomed by Sandy Weill as his successor apparent ever since Weill’s days at AmEx until Dimon had a public feud with Weill’s daughter Jessica, had assumed the CEO role at Citi which he he was prepped for? Would Citi have realized a different future than it has now realized? Vikram Pandit is a joke as a leader…so was Prince, who was more concerned with the success of his personal liaisons with Maria Bartaromo than he was with the success of Citi.

As a former employee of Citi … and a stockholder… I can’t help but explore the “What ifs”!

Posted by Lynn Marie | Report as abusive

As a Travelers employee, I was very concerned back in 2002 when Citigroup summarily spun us off and kept the Red Umbrella. However, now that Citi has been “spun off” the Dow and Traveler’s is on it,(with our Red Umbrella)I thank heavens for our CEO, Jay Fishman, and the excellent management/investment strategy that has kept our company strong! Thank you, Jay!

Posted by Rose | Report as abusive

to any former employee(s) there…what about the role played by Bob Rubin? Little responsibility or operational oversight, but can’t beat the take-home.

Jamie Dimon should be running this company.

Posted by Griff | Report as abusive