The Ouster of Vikram Pandit, and What That Means For Big Banks
Citi bank is a global, diversified company offering a wide range of financial services and products to consumers, institutions, corporations, and government. The unexpected resignation of Vikram Pandit, the Citigroup Chief Executive Officer (CEO), alongside John Havens, Citi COO, is a major factor that will influence Citigroup, as well as the US general banking industry. This was a rare happening since most CEO ousters take effect a few weeks after their announcements, in order to allow enough time to manage transition in management. The immediate effective ushering out of Pandit by Citi board of directors raises many questions to the public. This paper will address Pandit’s ouster, and describe how this major event in Citigroup will influence the future operations of Citibank, as well as other banks in the same industry.
Mr. Pandit took over as the bank’s CEO in 2007 when the bank was in a financial turmoil, but slightly recovered the profitability of the bank in 2010. Under Pandit’s management, much of Citi’s resources were devoted for future profitability. Expanding market to the developing countries was a prospective Pandit held (David, Suzanne, and Dan 1-2). The reasons offered for Pandit’s ouster emanate from struggles to recover from past financial crises at the bank. Mr. Pandit was forced to resign after the board of Directors at Citi bank felt that he managed the bank poorly. The board also claimed lack of appropriate communication from the CEO on vital business matters. During the tenure of Pandit, the shares of Citigroup fell by 89%, which resulted in a revolt by shareholders over his executive pay. The Federal Reserve also rejected Citigroup’s plan to purchase back stock. In addition, there was a $2.9 million write-down by Morgan Stanley, of a brokerage joint venture. All these unfortunate happenings can be numerically represented, but most probably point to poor judgment, rather than day-to-day oversight of specific business units (David 2).
Michael Corbat, Pandit’s replacement, may not perform as Pandit, who was credited a well performer, who knew the positions of the bank inside out. Corbat’s strategic directions for future of the company are also still uncertain. Many challenges Corbat, as he will feel the pressure of impressing quickly, since the bank’s shareholders are now frustrated about the bank’s uncertainty. Citigroup investment bank is a potential victim of shrinkage. It is enormous, but with uneven revenue since the times of the financial crisis. This continued decline has to be addressed in order to gain stability again. Mr. Corbat will also have to deal with the “black box” reputation of the bank. Observations show that the bank’s disclosures are not as comprehensive as those of other banks are. In order to regain the confidence of investors, Corbat has to tackle this issue also.
Consumers should expect to feel the difference between Citi managed by Pandit, and Citi managed by Michael Corbat, Pandit’s successor. This kind of transition at Citi may not positively influence on the financial health of the US banking industry, and the general US economy. This is because Citi is a bank that has been considered ‘important’ by the regulators, amid financial crisis. It is a troubled bank, and still struggles to gain stability. Pandit was a CEO that had set out to turn around the case of Citi bank, and ensure its total economic recovery. However, by firing such a dedicated CEO, Citi bank risks continued vulnerability to financial crises.
The shareholders of Citi bank continue to be adversely affected by the bank’s prolonged stagnation in financial instability. However, more parties will feel the pinch of this as it will affect the whole banking industry as well as the national economy. Citi is in the process of repairing its balance sheet, it is then expected that it will cut down on customer lending, in a bid to save more. Its customers will not access mortgages, loans, or even credit cards from the bank. The larger American society will feel this too, and it is no doubt that the ouster of Pandit will make no immediate commendable difference.
Granted Citibank is the largest bank in the US; its financial turmoil may be felt by other smaller banks. However, this influence may not be great as Citibank controls only 28% of the whole of US bank assets. The US banking industry is quite competitive. There are many banks, but none seems to dominate over the others. However, some economists feel that the presence of many banks in the US does not denote favorable competition. Instead, this means lack of competition at all (Schmerken 2). The board of directors had discussed the replacement of Pandit months before his ouster. Corbat, in an internal memo to Citi bank staff, promised to take the bank to the next level, by initiating important changes in the bank’s operation. He is also considered more skilled and more knowledgeable in banking and financial matters. His good relations with regulators, after interacting with them in Citi Holdings and the division, makes him appropriate for the new position.
The ouster of Pandit was sad news to most investment banks. These lacked any knowledge of Pandit’s ouster, and believed that the bank’s strategies were not going to change any sooner. They had communicated this to their clients, informing them not to expect any changes in the bank strategies, and no hidden announcements were expected. This misinformation between Citi bank fraternity and their clients paints a negative picture to its existing customers as well as the potential customers.
Different people have expressed different opinions on how Pandit’s ouster may affect its future. Some feel that Pandit’s exit was justified, and will serve the bank well, considering he did not bring considerable changes in the bank’s revenues during his tenure period. His qualifications and lack of experience had raised concerns about being given the position of a CEO. This has made people believe that Corbat stands a better chance being the CEO of Citi bank, due to his well-known experience and qualifications (The New York Times).
The ouster of Pandit came as a shock to analysts, investors, Citi employees, as well as the public. Despite his evident achievements at Citi bank, the dissatisfied regulators, shareholders, and board members were not convinced that he could do better. However, in as much as Corbat’s capabilities remain uncertain for now, it is only hoped that he performs better than Pandit performed, and realize a positive influence in Citigroup, and the US banking industry.
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