Citigroup Chief Executive Vikram Pandit is still working out a rescue plan that would turn over as much as 40% of the bank to the federal government.
The question is whether he will manage to hold onto his own job - and whether he will want to.
To judge from the lead quote in a Wall Street Journal story today, the power has already shifted from his office to Washington DC.
“Don’t give up on us,” the Journal quotes Pandit as he pleads with an unnamed federal official to keep the bank’s top management. “Give us a chance to execute.”
Despite Fed Chairman Ben Bernanke’s pledge that the government had no plan to take over the beleaguered bank, as a practical matter, top executives are ceding more and more control.
Pandit has been in talks with Treasury officials about converting the government’s 7.8% stake of preferred shares to as much as 40% of Citigroup’s common stock. Doing so would give the bank a shot of badly needed new capital, but would yield further power to its big-footed benefactor. .
Indeed, the government’s growing stake is also likely to lead to greater pressure to continue to unwind the bank’s financial supermarket model, the legacy of former chief executive Sandy Weill who sought to provide every financial service under a single roof.
Moreover, The Journal reports that the U.S.-Citigroup relationship is already strained by a series of miscommunications and missteps.
Since the government began to inject cash last fall, it has issued several broad directives: ordering Citigroup to sell assets to raise money and to curtail risky investments, encouraging a reshuffle of its board, and hinting that if it needed more taxpayer money, management might be booted.
Pandit agreed in January to spin off the Smith Barney brokerage unit into a joint venture with Morgan Stanley after insisting for years that they wouldn’t part with the business. The bank has also split itself into two parts, with the goal of selling additional assets and businesses.
But then came the public relations disaster of the bank’s plans to buy a $42-million corporate jet. Pandit had reportedly suggested the company cancel its order to avoid bad press, but yielded to an executive who wanted to study the idea. The news leaked out creating a political firestorm. President Barack Obama branded the idea “outrageous.” Treasury officials phoned Citigroup executives and pressured them to scrap the order, which they did.
Then there’s the question of recruiting new blood. With Richard Parsons becoming chairman of the bank’s board earlier this week, Citigroup initially suggested plans to begin director changes at its April shareholder meeting. The Fed rejected that, pushing lead director Richard Parsons to act sooner.
The Journal reports that the Fed has also frowned upon some potential nominees that Citigroup has pitched, saying Washington would prefer “tough-minded independent thinkers.”
Yet as Citigroup executives have reached out for guidance, the Journal reports that federal officials have sometimes given vague advice.
Last week, for instance, Pandit met with Lawrence Summers, the government’s chief economic adviser. Summers reportedly declined to discuss Citigroup specifically, and Pandit reportedly emerged with no better idea of where the Obama administration stands in managing its ties to the bank, the Journal reports.
Friday afternoon, after the bank’s shares had closed the week at an 18-year low of $1.95, top executives reached out to the Office of the Comptroller of the Currency and the New York Fed. They wanted to discuss Citigroup’s proposal to substantially enlarge the government’s ownership stake. The conversations were constructive, but they couldn’t progress much until they heard from Treasury.
Pandit’s phone didn’t ring until Sunday night, the Journal said.
It was Treasury Secretary Timothy Geithner, calling with a message: “I think we just need to do something.” Geithner said he was ready to entertain Citigroup’s idea of converting a big chunk of the government’s preferred stock into common shares, but was reportedly short on specifics. And so the discussions drag on.
For further background, see Muckety’s story last month on the ouster of former Citigroup Chairman Sir Winfried Bischoff.
Click here to sign up for the Muckety Newsletter
1 Comments
#1. ejsharp 03.03.2009
It looks like Pandit has troweled himself into a mortared box and the only remaining exit is for him to choose the door inscribed: “We the People”.
Leave a Comment