Citigroup Replaces CFO, Shakes Up Top Management

Citigroup announced Thursday its biggest management shake-up since the financial crisis began, replacing its chief financial officer and installing a new banking chief as it prepares to give the government a 34 percent equity stake.

Oliver Quillia for cnbc.com

The revolving door that Citigroup's upper management has become spun again amid intense pressure on Chief Executive Vikram Pandit to improve performance, add consumer banking experience in the senior ranks, and shed toxic or unwanted assets at the third-largest U.S. bank.

"It has been a long time coming," said Christopher Whalen, a managing director at Institutional Risk Analytics in Torrance, California, referring to the management shuffle.

"The government controls the bank." Edward "Ned" Kelly, who became CFO in March and is a former CEO of Maryland's Mercantile Bankshares Corp, was promoted to vice chairman focused on strategy and merger activity.

The new CFO is John Gerspach, the bank's controller and chief accounting officer. Gerspach is the bank's fifth CFO in five years. Both he and Kelly are 56. Eugene McQuade, 60, was named chief executive of the Citibank unit.

He was previously vice chairman of Merrill Lynch chief operating officer of mortgage financier Freddie Mac and president of Bank of America.

McQuade succeeds William Rhodes, a senior vice chairman who will reduce his day-to-day responsibilities to focus on international operations, his specialty.

Citigroup is based in New York but operates in more than 100 countries.

Separately, Gary Crittenden, who became chairman of the Citi Holdings unit created to hold businesses that Citigroup wants to sell or wind down, is leaving the bank and moving to Utah to become a managing director at private equity firm Huntsman Gay Global Capital.

Crittenden preceded Kelly as CFO. None of the executives was available for comment.

Uncle Sam's Fingerprints

Several analysts called the management changes encouraging, though it is unclear what they signify about Pandit's job status and the government's role in running the bank.

Top government officials did not order the shake-up, though the U.S. Federal Deposit Insurance Corp did learn about the changes Wednesday night, a person familiar with the matter said.

Citigroup is still subject to a government-ordered independent management review, the person said, suggesting that more executive changes could be forthcoming. The person lacked authority to speak publicly.

Citigroup has lost $36 billion over six quarters and received a series of federal bailouts. The bank has taken $45 billion of federal bailout money and is widely considered the least healthy major U.S. lender.

"They've weathered the maelstrom so far" because of the government help, said Malcolm Polley, chief investment officer of Stewart Capital Partners LP.

"Uncle Sam is going to put their fingerprints all over this thing." The changes "further help in positioning our company for the future," Pandit, 52, said in an internal memo. He said the bank is making "substantial progress" in shrinking Citi Holdings and bolstering Citicorp, which includes retail and investment banking and other units the bank wants to keep.

Citigroup announced the changes less than a month after Ajay Banga, head of Asia-Pacific region operations and one of its top consumer bankers, decamped for MasterCard Inc.

"In Citigroup's 2006 annual report there was a picture of its 43 most senior executives," Barclays Capital analyst Jason Goldberg wrote Thursday. "Only 17 remain."

Citigroup shares were up 3 cents to $2.65 in afternoon trading on the New York Stock Exchange.

CEO Survival Prospects

The bank expects to report second-quarter results on July 17, and soon after complete a stock swap that converts much of the government's investment into the 34 percent stake.

Analysts on average expect Citigroup to lose money over the rest of 2009, according to Reuters Estimates.

Michael Mullaney, who helps invest $9 billion at Fiduciary Trust Corp in Boston, said the management shake-up "enhances Pandit's ability to survive, especially if McQuade's experience at Freddie Mac results in more political clout." He added, "McQuade is also a traditional consumer banking executive, which will help Citigroup focus on core businesses and get away from the shopping mall approach Citigroup had."

Jeff Harte, an analyst at Sandler O'Neill & Partners in Chicago, called Kelly's move unsurprising, saying "Ned would be more interested in strategic decisions and (the) overall running of Citigroup, as opposed to being a number-cruncher."

That label better fits Crittenden, who has also been CFO at American Express , Monsanto  and Sears Roebuck . In a statement, he said he has been interested in private equity for many years, and "the time is right" to move now.

Huntsman Gay has an office in Salt Lake City. Pandit became Citigroup CEO in December 2007.

While a number of people at the bank blame predecessor Charles Prince for many of Citigroup's problems, Pandit has been faulted for addressing them too slowly, and for lacking consumer banking experience.

"I am still waiting for them to find someone for the CEO slot who has actually run a bank," Institutional Risk Analytics' Whalen said.

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