$1 Salary For Pandit: Citigroup Gets What It Paid For

The most charitable thing that can be said about Vikram Pandit, the CEO of Citigroup (NYSE:C) since December 11. 2007, is that he was in the wrong place at the wrong time. The bank’s stock is down 90% since his first day as chief executive. The shares of other large international banks were battered by the credit crisis, but JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) have gained most of their value back during the two-year period. Bank of America (NYSE:BAC), the most hapless of all the large financial firms, has even performed better than Citi in the market.

The time bombs of mortgage-backed securities were already sitting on the Citi balance sheet when Pandit was given his job. He can claim to be blameless for the cause of most of the firm’s severe problems and in that he would be right. What history will remember Pandit for, as much as his bad luck for being at Citi as the markets fell apart is how little he did to improve the bank’s fortunes. Most of Citi’s restructuring was forced on the company by the government. The firm has done some modest joint venture work in its private client and wealth management business by selling some of these parts of Citi to Morgan Stanley (NYSE:MS). Citi plans a public offering of it Primerica division.

But, the firm remains a nearly unmanageable monolith with 350,000 employees and 200 million customers. Many of its businesses bear no relationship to one another. Citi is no better off than it was the day Sandy Weill created it. The economy is just worse now.

Pandit did have a chance to completely alter Citi and perhaps in the process do something extraordinary for the company’s shareholders. Citi’s Institutional Clients Group is an investment bank tucked inside its parent. It should be valued more on the basis that Goldman Sachs (NYSE:GS) or Morgan Stanley are. That will not happen until it is an independent business.

Citi owns Banamex, the largest bank in Mexico. It is nearly impossible to make a case that a large financial firm in a developing country which has only modest economic prospects is valuable long-term investment.

Citi’s credit card business would probably be worth more to investors as a separate business. Capital One (NYSE:COF), which is in the same sector of the financial industry, has done much better in the market than Citi has during the two years since Pandit took over.
It is not always true, but in general more nimble companies can navigate a disaster better than firms which are highly complex collections of assets. That may be the lesson of GE’s (NYSE:GE) performance during the recession. The same may hold true for Microsoft (NASDAQ:MSFT) which has at least five major businesses, some of them with almost no relationship to the company’s massive operating system and business software operations.

The Personnel and Compensation Committee of the Board of Directors of Citigroup Inc. had a meeting last week. They determined that Vikram Pandit will be paid a base salary of $1 next year and will get no “stock salary” for the period. He may have suggested the compensation as a gesture to Citi’s battered shareholders. It is not much of a token. Those shareholders would rather have Pandit take home $50 million and see Citi’s stock back where it was on December 11, 2007

Douglas A. McIntyre