Pandit's Sudden Exit: What Really Happened at Citi?
CNBC.com Senior Writer
Wall Street was left bewildered Tuesday at the stunning exit of Citigroup CEO Vikram Pandit, who told CNBC he stepped down voluntarily. Insiders, though, said Pandit was forced out.
Pandit shocked the Street with the announcement before the market opened that he would be leaving the company after nearly five years. (Read More:Pandit Reportedly Forced Out at Citigroup )
In an interview, Pandit denied he was forced out, saying it was his decision and felt it was time to leave now that Citi's operations had stabilized.
He also denied that pay was the center of a disagreement he had with the board. (Click here for more from the interview with CNBC's Maria Bartiromo ).
"Let's not forget, I was the one who worked for a dollar when I needed to, " he said. "It was just time after five years of accomplishing what we set out to do." (Read More From Pandit Interview )
On a conference call with analysts later Tuesday, Citigroup chairman Michael O'Neill said that "no strategic, regulatory or operating issues precipitated Pandit's departure."
The new CEO Michael Corbat also suggested that there would be no major change in strategy.
"We will continue to focus on growing Citigroup's core businesses particularly those where we have a unique presence in the world's fastest growing emerging markets, " he told analysts. The bank will also continue to shed assets in Citi Holdings.
However, there was still no explaining the unusual timing of the announcement.
Pandit's tenure was bookended by extremes — he stepped in as the credit crisis was about to explode across the financial markets and the global economy, and he walked away just as it seemed the company might be finding some stable ground.
His exit was no less dramatic, with a portrait emerging of a clash of ideas — a bank looking to steer a post-crisis direction, being led by a chief executive whose name will always be linked with the institution's darkest days. (Read More: Pandit's Departing Memo to Employees )
"The timing and the way in which it was done are unsettling, but I think a lot of people wanted to see Vikram Pandit gone, " Erik Oja, equity analyst at Standard & Poor's Capital IQ, said in an interview. "He just reminded them of the financial crisis. He's been there since December 2007. Maybe it's just nice to have a fresh new face in there in the CEO job."
CNBC stock commentator Jim Cramer reported that Pandit was forced out in a disagreement with the board, an account that jibes with the Wall Street Journal's reports that the clash centered on strategy and performance. (Read More: Meet Citigroup's New Boss )
One high-ranking Citi source told CNBC that company Chairman Michael O'Neill had called several operating committee members Monday night to inform them of Pandit's impending departure. Talks apparently had been ongoing for weeks on the smoothest exit strategy as it became clearer that Pandit would be leaving soon.
Citi 's stock tumbled nearly 90 percent during his tenure, despite a reverse stock split, but shares were little changed following the announcement. The stock is up 22 percent over the previous 12 months.
On Monday, Citi reported earnings per share of $1.06 that beat analyst expectations. However, the company gave no hint that a changing of the guard was about to take place, which raised hackles Tuesday after the Pandit announcement.
"The abrupt timing of today's announcement is all the more surprising given the lack of any mention in the course of the earnings report — potentially exposing the company to legal liability, " Sterne Agee analyst Todd L. Hagerman said in a note.
"Today's announcement exhibited few (if any) of the characteristics of a typical CEO succession, let alone for a company of Citi's prominence, " added Hageman, who has a "neutral" rating on the stock and a price target of $38.
"It's likely the board was starting to ask some tough questions about why Citi was not such a dominant player in mortgage banking as are JPMorgan and Wells Fargo, " Oja said.
Despite misgivings over the way the departure was handled, S&P kept a "buy" rating and a $42 price target on the stock, anticipating that Pandit's replacement, Mike Corbat, would help chart a new path forward.
"Mr. Pandit was more of an academic — a PhD in finance from Columbia, " Oja said. "Mr. Pandit is too cerebral and it's time to do what all the other banks have done, which is have a banker" as CEO.
Sources said part of the dispute centered on salary, despite Pandit's insistence to the contrary.
As the bank navigated its way out of the crisis, Pandit was taking a salary of just $1 a year. (Read More: How Citigroup, CEO Pandit Turned Themselves Around )
But his compensation had grown to nearly $15 million, including bonuses and options, at a company that still was struggling to overcome some notable weaknesses. Taking advantage of new "say-for-pay" authority, shareholders had in recent months voted against a raise for Pandit.
Many insiders pointed to the misfire when the company sold 49 percent of its interest in the Smith Barney brokerage to Morgan Stanley, a deal that ended up costing Citi $2.9 billion. Another strike against Pandit came when the bank failed its stress test.
"They didn't get the capital they wanted, " said Fred Cannon, analyst at Keefe, Bruyette & Woods. "Pandit clearly was overpromising and underdelivering on that score."
Still, KBW also has kept its "buy" rating on the stock.
"With nothing against Pandit, it's a net positive for shareholders and the company, " Cannon said. "It just means you're going to see an acceleration of dealing with the challenges they face and getting Citi back to a core global payments business, which is where they have their expertise."
Dick Bove at Rochdale Securities has a "positive" rating with a $40 price target on Citi. Bove told CNBC's "Futures Now" that Citi is a "screaming buy."
Watch Bove on CNBC.com's Futures Now webcast discussing the Pandit resignation.
"Pandit has achieved every goal he set out to implement when he came to the company, " the vice president of equity research at Rochdale Securities said. "Remember, it was a bankrupt entity then and now it has excess liquidity and capital."
Pandit himself offered few clues about his departure, saying only that he felt it was the right time for him to walk away.
"Citigroup is well-positioned for continued profitability and growth, having refocused the franchise on the basics of banking, " the 55-year-old outgoing executive said in a statement. "Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm at Citigroup."
Pandit had been the face of Citi when the company was fighting for its life during the financial crisis.
Analyst Meredith Whitney's opinion that Citi would need to slash or eliminate its dividend because of toxic subprime mortgage debt on its books helped kick off the ordeal.
Then-FDIC Chairman Sheila Bair remains bitter over the favorable terms Citi got when the government became a shareholder in the company, and said Tuesday that Pandit's depature is a positive.
"I had a lot of frustrations dealing with Citi management. It did undermine my confidence in them, " Bair said. "They're one of the largest commercial banks in the world and they need to have somebody with some commercial banking experience, which Vikram did not have."
Robert Benmosche, the CEO at American International Group, the insurer and another key player during the financial crisis because of its wide exposure to credit default swaps, said the move signaled a changing of the guard.
"I'm just as surprised as anybody else, " he said. "This may be a sign that he wants to move on and maybe a sign that they're ready for the next era of leadership."