Why Vikram Pandit was forced to quit Citigroup

On Tuesday, Vikram Pandit, 55, now former CEO of banking behemoth Citigroup who had steered the bank out of a financial catastrophe, found himself out of job.

According to some news reports, when Pandit was in Japan last week, meeting International Monetary Fund and World Bank officials, Michael E O'Neill, the new chairman of Citigroup since April, was applying the final touches of his masterplan to remove Pandit.

This involved strategising with fellow board members and ensuring Michael Corbat, Pandit's successor, was transported to New York for the announcement.

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The 'resignation' turned out to be a shocker. After all, Citi had just posted a pre-writedown profit of $3.27 billion, or $1.06 a share, up from $2.57 billion the previous year, beating analysts' expectations.

The stock zoomed five per cent. Furthermore, when Pandit arrived at Citi in 2007, it was in the epicentre of a meltdown.

The bank had lost its shirt on the subprime mortgage rot and had to be bailed out by the government by as much as $45 billion.

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Pandit staged what was generally regarded as a pretty solid rescue act.

He created a separate unit to flog off its toxic assets, streamlined Citigroup into a relatively small bank that focused on investment banking, and consumer and corporate lending.

He even managed to pay the government back in full by issuing new shares, while boosting its funding profile by migrating to more stable, long-term debt.

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Under Pandit, the bank logged a whopping $11 billion in profits in 2011, only a few years after emerging from an epic financial mess. Ratings agency Moody's upped its outlook on Citi from negative to stable.

Pandit even worked for the salary of $1 in 2010 and vowed not to take one until the bank turned profitable.

Yet, these accomplishments were not enough to save Pandit his scalp.

Indeed, the knives were probably being sharpened for him ever since he came to Citi, when the bank decided to pay $800 million for Pandit's hedge fund, Old Lane, putting a cool $165 million into his own pocket.

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The investment was considered a dud and had to be eventually wound down. The fact that Citi's shares had lost close to 90 per cent of its value during Pandit's five-year reign didn't help much either.

However, according to reports making the rounds, the real rumblings began earlier this year when Pandit, who had begun to try and forge closer relationships with the Federal Reserve in Washington, decided to try and buy back shares and increase dividend payments to keep shareholders happy.

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Fed thought otherwise and rejected the plan ostensibly because they didn't think the bank was robust enough to do so.

Some of the directors apparently regarded it as a public humiliation.

They were apparently even more incensed when Citi took a $4.7-billion bath after writing down the value of its stake in the brokerage unit jointly owned with Morgan Stanley in the third quarter this year, while Morgan was largely seen to have engineered a valuation coup for itself. By then, the die was cast.

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Ultimately, some say these changes are as much about personality and banking creds as anything else.

Nagpur-born Pandit was an electrical engineer as well as an MBA and PhD in finance from Columbia University who spent his entire career at Morgan Stanley.

He was perceived to be more of a quant-head, unlike many Wall Street CEOs who had risen through the trenches of retail broking or investment banking that were all relationship-heavy, bread and butter businesses.

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His successor, Corbat, 52, is a Harvard graduate who has spent his entire career with Citi and is currently head of its Europe and West Asia and Africa operations.

With the US housing market now recovering, and mortgage financing and re-financing on the rise, the plaudits for Pandit's hard work at Citi may eventually, ironically, accrue to his successor.