Reprinted from July 2010 www.euromoney.com Volume 41, Number 495 BANKER OF THE YEAR Pandit knocks Citi into shape For a man who was supposedly doomed to fail, Vikram Pandit has done a pretty good job in transforming Citigroup. Few, if any, bank chief executives have faced a tougher set of challenges over the past two years or been the subject of as much criticism. He has come through many battles, and has many more to come. But perhaps it’s time to start giving Pandit some credit. Clive Horwood reports “BEING A SUPERMARKET is not a strategy.” “Think about it: we cut our workforce of 370,000 people by That simple sentence sums up everything that went wrong with 110,000. We sold a lot of assets. We raised a lot of capital. And yet Citigroup, and everything that Vikram Pandit is trying to do to we have maintained revenues. That tells you a lot about how far we make Citi one of the world’s best banks again. have come from the old Citigroup,” Pandit says. Citi isn’t back just yet, but it’s on its way. First-quarter 2010 earnings, announced in mid-April, were some of the most impres- A whirlwind debut sive in the industry. Citigroup produced net income of $4.1 billion. Pandit joined Citi in July 2007, just as the bank was about to realize Compare that with Bank of America, which is widely thought to the extent of the losses it had suffered in the sub-prime and lever- have emerged from the crisis faster and stronger than Citi, but made aged finance sectors. $3.2 billion over the same period. Or Barclays, a bank that suppos- It was a whirlwind six months for Pandit. He joined to run Citi edly came out of the crisis a clear winner, but has first-quarter net Alternative Investments. income of about $2.2 billion. Or JPMorgan, the bank least impacted Before long, he had been asked to come in and sort out the prob- by the credit crunch, but which had first-quarter 2010 net income of lems within Citi’s banking and markets divisions, since renamed the just $3.3 billion. institutional clients group. “I was running our alternative business One quarter does not make a recovery. Citi posted a loss for six in midtown. One day Chuck [Prince] called and said: ‘Vikram, I need of the nine previous quarters and a loss in Q4 2009 of $7.6 billion. you downtown [at the bank’s Greenwich Street banking and markets Most analysts had expected the bank to break even for this one at hub] to help sort out our market positions. Put the right people in best. place and then go back to doing what you were doing before’.” It was the first good piece of news Pandit had been able to Pandit felt compelled to leave the job he had been brought in to present in almost two-and-a-half years as chief executive of the do. “I respected Chuck, and could not turn him down. And once I group. His has been one of the most challenging tenures the bank- had made the decision to go downtown, I owned it. There was no ing industry has seen. Few thought he would survive. Fewer still going back.” thought he was the right man to restore Citi. He might just be Citi unravelled very quickly in the autumn of 2007. One minute proving his critics wrong. chief executive Chuck Prince was still dancing; the next he was Those critics have included Federal Deposit Insurance Corp chair gone, as Citi revealed it would post sub-prime losses of $11 billion Sheila Bair who, last summer, had angled for Citi to be broken up and sought a $7.5 billion capital injection from the Abu Dhabi quickly and for Pandit to be replaced as chief executive. Investment Authority under an interim leadership team of Citi vet- At the time, Euromoney was sitting in the office of another leading erans Robert Rubin and Win Bischoff. Wall Street banker. On the TV screen, a caption with two photos At the same time, the board was looking for a new chief execu- flashed up: “Pandit vs Bair”. “Well,” said the chief, “we all know tive. Rumours were rife about who would get the job: could Josef who is going to win that battle. And it’s not Vikram.” Ackermann be tempted to leave Deutsche Bank? Would Barclays They have included Sandy Weill, the creator of the Citi supermar- president Bob Diamond fulfil his dream of running one of the big- ket, who let it be known that he was unhappy with the way Pandit gest US banks? Could Jamie Dimon be persuaded to return to the was running Citi, and that he had not been consulted having publicly bank that he had once been heir apparent to, before his falling out backed the bank through a share purchase in January 2008. with Sandy Weill? Pandit is still there. Those that dismissed him, who underesti- Few people picked Pandit as a potential leader. He had only been mated him, might now have to eat their words. He has seen through at the firm a few months. Citi was a universal banking behemoth, one of the most dramatic bank restructurings in history. And now, employing not far short of 400,000 people; Pandit’s pre-Citi he thinks, he and his team deserve some credit. management experience had peaked at Morgan Stanley, where he “We don’t always get credit for some of the tough decisions we managed a few thousand people in the institutional securities group. have made: decisions which have enabled us to take $13 billion a He had no experience of the consumer and commercial banking year off our cost base,” he says. “And this at a company that tried businesses that had been the bedrock of old Citicorp. and failed many times to get costs under control in the past, and has Rubin said at the time: “The combination of his deep executive now achieved this without hurting revenue significantly.” experience and long history as a strategic thinker makes Vikram the Those cost savings equate to $3.25 billion a quarter: that’s most of outstanding choice to be Citi’s chief executive.” Few people thought the net income Citi made in its first quarter. And that revenues were those credentials would suffice for one of the toughest jobs in bank- maintained tells its own story. ing history. www.euromoney.com Reprinted from EUROMONEY · July 2010 Cover story to take the bank through the crisis and then forward into the future; and to rebuild a culture of execution.” Pandit and his team immediately got to work, but nine months later the problems they faced were no longer Citi-specific: Lehman Brothers collapsed and the crisis became systemic. “Lehman changed the rules of the game for us and every other bank. The markets had given us the capital we needed up till that point,” says Pandit. Now, as Citi faced collapse, the markets could not give Pandit what he needed to survive. So he was forced instead to turn to the US government. The mighty Citigroup, not long ago the biggest bank in the world, was on its knees begging for help. That culminated in a third bailout for Citi in February last year, when the US government agreed to convert $25 billion of preferred stock into common equity. Citi’s tangible common equity had plummeted to just $29 billion at the time. Its stock was trading at just $1.50. “Our decisions on raising capital, particularly relating to the investments by the US government, were tough but necessary,” says Pandit. “Our early capital raises, though important, turned out to be insufficient in the light of the collapse of Lehman and subsequent “Being the biggest is no longer a definition of events. Getting our capital position strong, and our operating com- pany in order, was critical.” success here. I don’t want to be number one in everything. But I do want my clients to think Seeking a new strategy we are the best at what we do” All the way through the crisis, while Pandit was raising capital and dealing with a share price that had been wiped out, the new chief John Havens, Citi executive and his team were trying to define a new business model for Citi. “We had to get our strategy right, and then we could make some Pandit knew he had his doubters. “Sure, I was relatively new to informed decisions,” says Pandit. the company, but at least I had had a few months here and was Citi’s new chief executive actually had some previous experi- familiar with the issues we faced, unlike any candidate that may ence in helping Citi through a crisis, as his colleague, John Havens, have come in from the outside,” he says. “And given that Citi was now chief executive of the institutional clients group, explains: involved in so many parts of banking, it would have been hard to “Vikram and I first walked into Citi when we were at Morgan find a candidate with experience across all of them. Remember most Stanley together in the early 1990s. We worked with John Reed on of the problems stemmed from issues in the investment banking the restructuring of the business. The thing that Reed did best, and and trading parts of Citi, businesses which I had a great deal of expe- which we always remembered, is that he believed in Citi’s platform rience in from my career at Morgan Stanley.