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Citigroup Meeting: What a Difference a Year Makes

Adam Jeffery | CNBC

Perhaps Citigroup can finally sleep.

The bank fielded dozens of questions Wednesday at its annual shareholder meeting over impending regulation, the bank's strategy, and even the status of personal accounts. The exhaustive, three-hour question-and-answer session—in a marked difference from prior years—saw shareholders praise management and the board for revitalizing the bank's strategy.

"The Mike & Mike show is off to a great start," said Mike Mayo, outspoken analyst-cum-Citi shareholder at CLSA, referring to the presenting duet of chairman Mike O'Neill and freshman CEO Mike Corbat.

Citigroup shareholders descended upon midtown Manhattan's Hilton Hotel with axes to grind. The prior year, the bank failed the Federal Reserve's stress tests, offered an underperforming CEO a multi-million dollar pay package, and botched a deal to sell its brokerage to Morgan Stanley.

The O'Neill-led board moved swiftly in October to replace Pandit with Corbat, who wasted little time identifying $1.1 billion in cost cuts and exiting non-core businesses.

"We've seen Mike [Corbat] operate. He's a manager, he's decisive, and he gets results," said O'Neill in praise of the work done thus far in his tenure. Citigroup shares rose as much as 2 percent intraday.

The bulk of Wednesday's questioning concerned not just the current turnaround, but also the well-telegraphed idea that Citigroup, ultimately, could get drastically smaller, or even break up. Both executives said doing so at present would be doing so in an "uneconomic" way.

In the meantime, Corbat said in his remarks: "The core strategy remains the same."

Boston-based Trillium Asset Management, which owns $20 million in Citi stock, proposed in November that shareholders should get to vote on a company strategy to disclose more fully the sum-of-the-parts valuation of the bank, or pursue a more rigorous restructuring. The Securities and Exchange Commission nixed the proposal on the grounds of it being too vague.

"The argument we've had is—while they've done a lot, they need to do more," said Matt Patsky, CEO of Trillium, in a phone interview. "There's still more opportunity to unlock value. Why not have that conversation?" Patsky said in his conversations with Citigroup management, they expressed commitment to the existing strategy.

"If we find that this doesn't result in value creation for shareholders, we'll deal with it [then]," O'Neill said at Wednesday's meeting. (Trillium, while mentioned during the Q&A, was not in attendance.)

That strategy means refocusing on the world's top 150 cities, serving a denser population, and building more services online—all while whittling away at the "bad bank" Citi Holdings, currently a major headwind on the bank's capital base.

Shareholders, including Russell Forenza, a longtime Citi shareholder claiming his stock had lost $1.5 million over the years, seemed appeased by Wednesday's message. Forenza had no fewer than 10 turns at the mic, lambasting the company for its 2011 reverse stock split, its steep legal fees, and the overinvolvement of company directors. In the end, even Forenza told management they were doing a "great job" – a tone signaling a departure from years' past.

The meeting ended on a markedly different note, too, with some 90 percent of investors approved the year's pay package for new CEO Mike Corbat—after striking down the same measure for former CEO Vikram Pandit in 2011.

During the time that Corbat—who will earn $11.5 million for 2012—has served as CEO, shares have risen nearly 20 percent. During 2011, for which Vikram Pandit was set to receive $15 million in compensation, shares fell 44 percent.

As he was leaving the meeting, CNBC caught up with the notoriously private O'Neill on his impressions of the event. "I was hoping to answer shareholders' questions—which I think we did."


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