NEW YORK -- The incredible shrinking bank may have to shrink more.
In the hours after Tuesday's surprise announcement that Citigroup CEO Vikram Pandit was stepping down, speculation was rife, and facts scant, about what lay ahead for the nation's third-largest bank.
But one possibility given high odds by financial analysts: More cost-cutting, more shrinking and more focus on boring, traditional banking, like making loans.
"It's going to get a lot smaller," said Gerard Cassidy, a long-time banking analyst at RBC Capital Markets. "You've got to shrink to make big money."
In the nearly five years since Pandit took over as CEO, he shed businesses and cut jobs. Staff fell from 375,000 when he took over to 262,000.
Once the nation's largest bank, Citi is now the third-largest, with $1.9 trillion in assets. It trails JPMorgan Chase, with $2.3 trillion, and Bank of America, with $2.1 trillion.
Citi's new CEO is Michael Corbat, 52. He had been the CEO of Citigroup's Europe, Middle East and Africa division. He also ran Citi Holdings, which contains assets that Citi wants to sell.
Because Corbat isn't widely known, analysts Tuesday were not sure how he might change the direction of the company.
For clues, some are looking to someone more well-known: the man thought to be behind Pandit's departure, Citi Chairman Michael O'Neill. O'Neill became chairman in March, when Richard Parsons left after three years.
O'Neill was elected CEO of Barclays, the British bank, in 1999 but had to give up the job immediately because of heart problems. He joined Citi's board in March 2009. O'Neill had also been CEO of Bank of Hawaii Corp., where he was a big cost-cutter.
"When he ran Bank of Hawaii, he shut down up to 50 percent of its branches. It's a startling number," said Cassidy. He added that at Citi, "if the branch banking businesses doesn't make sense in parts of the United States, (he'll) get rid of it."
Tom Brown, founder of hedge fund Second Curve Capital, agreed.
"O'Neill downsized tremendously, and that's what I think you'll see here," he said.
For years, the goal in banking was to get bigger, spreading expenses over more and more customers and offering a smorgasbord of services. This was the vision of Sandy Weill, the former Citi CEO who built the bank through several deals.
But the appeal of the one-stop shop, though not dead, has lost its luster since the financial crisis. Many banks, Citi included, were so sprawling, they didn't even know the risks they had assumed.
As the housing market imploded, Citi lost $32 billion in 2008, according to FactSet, a financial data provider. Nearing collapse, the bank took $45 billion in government money.
The government converted $25 billion into an ownership stake, which it sold in December 2010 for a $12 million profit. Citigroup had repaid the other $20 billion in December 2009.
In a conference call with analysts late Tuesday, O'Neill gave few details about how the bank may change after Pandit. But he did note that it will be "extraordinarily focused on our expense level."
Some analysts speculated the bank may place less emphasis on Wall Street trading and helping companies sell stocks and bonds to the public, the so-called investment banking in which Pandit had expertise. The business is volatile, with blockbuster profits occasionally followed by big losses.
Instead, the focus could shift to commercial banking, what Daniel Alpert, managing partner of Westwood Capital, calls the "dull and boring" businesses of lending to companies and consumers.
Dick Bove, a bank analyst at Rochdale Securities, thinks Citi will not only emphasize commercial banking, but will shift focus more overseas where the bank faces fewer rivals and could charge higher interest rates.
"If you look at domestic commercial banking, you have lower interest rates, you have higher losses, you have regulation and a high degree of competition," he said. "If you go overseas, you don't have any of those. You have tremendous growth."
Citi manages 200 million accounts with customers in 160 countries.
Corbat also spoke to analysts on the conference call but, as was the case with O'Neill, gave little indication how Citi might change. Corbat has worked at Citi and its predecessors since he graduated from Harvard in 1983.
Pandit's resignation came a day after the bank announced what many analysts had hailed as terrific earnings for the third quarter.
"It feels very abrupt to us," one analyst, Mike Mayo of CLSA, said on the conference call. "We're all scratching our heads, and thinking, `What just happened?'"
O'Neill replied, "What happened is Vikram submitted his resignation."
Pandit is credited with not only slimming the bank, but removing it from government ownership after the bailout and righting its balance sheet after billions in losses on bad mortgage investments made before he took the helm. But he came under criticism for not cutting expenses enough last year.
"You're in a recovery mode, and the last thing you should do is make investments that retard that," said Second Curve's Brown of the bank's 2011 investments overseas and in branches. "Last year was terrible."
Said Cassidy: "I don't know if (Pandit) was pushed out or quit, but I don't think he was following the game plan of O'Neill."