Pandit has clearly not learned one of the most important lessons for public company CEOs—under-promise and over-deliver. Citigroup still faces years of trouble with its exposure to the consumer credit market and the consumer and commercial real estate sectors. The liabilities from those exposures will be a substantial drag on the banks earnings through the middle of the decade. Citi will also be hurt by new legislation that will cut hundreds of millions of dollars of fees that it charges its customers for services like overdraft protection and penalties for late payments on credit cards.
Citi Holdings has been set up to hold and sell assets that the big bank does not want to keep. These include nearly a quarter of a trillion dollars in toxic assets. The financial firm may not find ready buyers for most of the businesses on the Citi Holdings balance sheet.
One of the largest obstacles to a sharp turnaround in the bank’s fortunes is legislation which could severely restrict proprietary trading at banks which have commercial bank operations. Citi could greatly improve its returns if it could produce only a fraction of the results that Goldman Sachs does when trading for its own account. But, Citi and its rivals may be forced out of that business before they get a chance to aggressively pursue the Goldman model the way that they tried to before the credit crisis.
Pandit actually has a very small chance of delivering on his forecasts.
Douglas A. McIntyre
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