At Ease

A penny a share. So minuscule is the dividend just reinstated by Citigroup, even Vikram Pandit overlooks it when he affirms that the company will "begin returning capital to shareholders next year."

But the May declaration of a 1-cent quarterly payout was more significant than the token size of the dividend would suggest. Beyond carrying the implicit endorsement of the Federal Reserve, which had barred rival Bank of America from paying any dividend at all this year, it suggested that Citi was back in position to do things because it wants to, and not necessarily because its hand is being forced.

For Pandit, who was made chief executive during a crisis that was just beginning to unfold, the downshift in the influence of external events means he has the chance, at long last, to set new priorities and put his own imprint on the company.

In an exclusive interview, Pandit described how Citi made the transition "from a wartime to a peacetime environment" after the most acute phase of the financial crisis had passed. He talked about the reinvention of Citi's image, his own evolution in one of the highest-profile jobs in all of financial services, and his vision for what comes next at a company known for its pattern of ambitious growth followed by chastized retraction.

With the matter of Citi's immediate survival having been addressed, running the company day to day is "intense, but it's not crisis-intense," Pandit says. "I'm now doing the kinds of things I hoped to do when I came in" as CEO three and a half years ago.

This includes stripping Citi down to its core businesses in retail and wholesale banking, sharpening its competitive edge in emerging-market economies, and making key outside hires for a U.S. consumer business long seen as rudderless. He also intends to identify leaders within the company, with the aim of breaking the cycle of poor succession planning that has plagued the firm for years.

There was little time for such strategizing when Pandit was named CEO in December 2007. The company was floundering on its way to amassing $18 billion in subprime mortgage-related write offs that quarter, which was just a prelude to the liquidity crisis to come the following year. Pandit moved quickly to raise capital, dump assets, slash jobs and sharpen risk management.

"There are lots of friction costs to change, and what a crisis does is allow you to understand that those costs are with you anyway, so let's go," he says.

From the outside, it looked more like necessity than strategy. What choice did Citi have, for example, but to start selling assets more aggressively when a shotgun wedding with Wachovia got annulled, leaving Citi with far too few deposits to support its hulking balance sheet?

But insiders say that some bold decisions-including a choice to place 40 percent of Citi's assets into Citi Holdings, a bucket for businesses and investments slated to be sold or wound down-helped to crystallize a vision for the company even while the specifics of the strategy were still being hashed out.

"In some ways, all the banks out there have a 'Holdings.' We just chose to declare ours upfront," says Michael Corbat, CEO of the Citi Holdings division. "What that's done culturally is it's created a lot of clarity within the organization." So much so, Corbat adds, that in a company of 260,000 people, "you can ask in about any country, at any level of the company, 'What's our direction? What's our mission? What, as a company, are we focused on? And you will get a very clear, articulated response from our employees in terms of what that is: we're going back to our roots of being a bank, and as Vikram describes us, we are America's global bank."

A noble goal, certainly. But is it enough to sustain the interest of 260,000 people coming down from the collective adrenaline rush of working in corporate survival mode?

Pandit acknowledges the distinction in motivations. "Our challenge is a different challenge right now," he says, relaxing in Citi's executive suite.

As he talks about Citi's future, Pandit is engaged but not effusive. He speaks in a measured way with a cool demeanor-not "I'm king of the world" cool, but "I've been charged with a task and I'm handling it" cool.

"I tell our people that I do fundamentally believe that we've got the best set of cards of any large financial institution-and by the way, that's because we traded and we threw and we narrowed it down and said we want to keep [some]. Our challenge is to get this organization to play them to the max."

Of course, there will be no concrete way to measure whether Citi has succeeded in that. "A lot of this is internal to us," Pandit admits. "[But] there is no lack of urgency in the organization, for the fact that we've got a great opportunity to make something happen."

With Citi doing business in 160 countries and renewing its focus on serving clients, the potential is there. The trouble is, it always has been. To those who have followed the company through its many iterations, the promise of the Citi enterprise is a discussion point that feels very familiar, and not in a comforting way.

The company's track record since its modern-day formation in 1998 suggests a propensity to lurch from one idea to the next, sometimes with grand pronouncements, often with little to show for it.

Mike Mayo, a banking analyst with Credit Agricole Securities affiliate CLSA and a frequently vocal critic of Citi's, counts 30 major senior-management changes or reorganizations and 20 major risk-management mishaps at the company since the 1998 blockbuster merger of Citicorp and Travelers Group. Even before then, Mayo says, Citi had a strong pattern of avarice and comeuppance, expanding wildly when it spots good ideas and contracting painfully when circumstances go south, as they did in Latin America in the 1980s and in commercial real estate in the early 1990s.

That pattern held through the technology bubble and the subprime mortgage debacle, and though many banks fared poorly in both, few got tripped up quite so spectacularly as Citi.

"The theme here is of a company that is in a constant state of reinvention, often out of a position of weakness," says Mayo. "The question is, once again, will the expansion stage at Citigroup result in tears?"

Pandit has managed to keep Citi above the fray on several key issues currently bedeviling the industry.

New overdraft rules, for example, were a trivial threat to the company's fee income, because Citi rarely allowed retail customers to overdraw their accounts in the first place. Foreclosure missteps and mortgage put-backs so far appear to have been contained, at least compared with the trouble Bank of America is facing; and debit interchange at Citi carries a fraction of the importance it has to other firms, meaning the stakes for Citi in the fight over the Durbin Amendment are far lower than they are for rivals such as JPMorgan Chase & Co.

Citi's sidestepping of these trouble spots has helped the company begin to repair its image. It is still a big bank, it still has big challenges and it still will be remembered as the industry's biggest rescue job to date; but Citi no longer looks like the outlier, alone in its penalty box, consumed by efforts to not be such a basket case. It now has other things to talk about, such as the top investment bankers it has attracted from rivals including UBS, and the $3 billion it is spending to bring all of its consumer accounts, across regions and product lines, onto a common technology platform.

Meanwhile, BofA is shedding non-core assets as quickly as it can and JPMorgan Chase is making a concerted effort to expand in emerging economies including China, Brazil and India-countries where Citi has operated for nearly a century or more. Taken together, these moves make for one of the greatest present-day ironies in the industry: Citi, the bank no one wanted to be three years ago, now almost looks like a trendsetter.

The reversal, or at least the halt, in Citi's reputational misfortunes helps explain how Pandit, a reclusive figure early in his tenure, has suddenly become a very hot ticket.

In April, he was guest of honor at the annual black-tie fundraising gala for New York's public broadcasting company. In May, he delivered a graduation speech at the University of Pennsylvania's Wharton School, where he told the MBAs that during the two years they were in school, he, too, "received a great education, facing crises and making decisions-many of them very difficult."

Jerry W. Levin, a corporate turnaround expert who restructured Revlon in the 1990s and led Sunbeam through a bankruptcy reorganization in 2001, took notice when Citi seemed to be regaining traction. Levin is on the board of U.S. Bancorp, which entered the crisis in fighting shape and maintained its composure better than most banks in its weight class. Late last year, he began thinking that Pandit might be a fitting honoree to celebrate at a Manhattan fundraiser for the UJA-Federation of New York, the Jewish philanthropy of which Levin is president.

He phoned former U.S. Bancorp CEO Jerry Grundhofer, now a director at Citi, to ask his opinion. "I said, 'What do you think of Vikram? Because it sounds like things are starting to happen at the bank.' And he said, 'Absolutely.'"

Over cocktails and hors d'oeuvres at the $1,000-a-head reception, held in May at the grand Manhattan events hall that once housed Greenwich Savings Bank, Levin searches for context to assess the changes at Citi. He gives Pandit high praise. "You know, I specialize in turnarounds," he says, "but the magnitude of what he has done has been positively astounding.'"

For so complex a company, Pandit's strategy is remarkably simple: stick to what you're good at, and only do it if it serves your clients.

It's not a terribly original idea at Citi, as Pandit himself would attest. In describing the ideas driving Citi now, he makes the reference to the old City Bank of New York, founded in 1812, which financed trade between New York and Liverpool, England. Early borrowers, Pandit notes, included one of the first steamship companies to plan voyages according to a timetable, while other ships waited in port until they were full.

"Our history suggests that we are really good at dealing with clients and processing payments-the Global Transaction Services business-and it shows that we're really good at lending to innovators, and innovating," Pandit says. "That was completely understood by Walter Wriston, and John Reed carried that on as well, particularly on the consumer side."

Pandit spoke so insistently at the start of his tenure about the need for Citi to take a "dispassionate" look at itself-it's almost incongruent now to hear him invoke the names of legendary Citi leaders from the past century. He mentions Wriston twice in two minutes while describing Citi's back-to-basics strategy, underscoring the difference between dispassion and disinterest. While Pandit does not come across as being sentimental about Citi's history, he clearly has an appreciation for it.

He even expresses appreciation, though not in the same admiring tone, for the financial supermarket idea that created Citigroup in 1998 and expanded its reach to the far corners of finance. "It was just a different strategy," he shrugs. "I don't really want to look back on it. Different strategies are right for different times, but I didn't think it was the right strategy for us as a bank at this time."

Pandit does not mention by name the architect of that strategy, Sanford Weill, whose legacy as an empire-builder was compromised by his neglect of succession planning and a shortage of rigorous risk management.

Had Weill or his eventual hand-picked replacement, Chuck Prince, shown more interest in formal succession planning, Pandit's promotion to CEO in late 2007 might have come off looking more deliberate, and less like an option for a company with little choice. Then again, it's likely that the selection of Pandit would have been second-guessed anyway.

Pandit was an outsider, having just arrived at Citi earlier that year when the company acquired his hedge fund, Old Lane. Although he had the strong backing of Robert Rubin, the former Treasury Secretary who was working for Citi as a senior advisor, Pandit had not amassed the wide support he would have needed for a smooth ascension.

Given the way Citi was structured at the time, it's not clear that anyone could have. The company was a collection of silos, each with its own short list of candidates. Team spirit was in short supply; it was a permissive environment for insiders who wanted to take pot shots, or cajole people from outside the company into taking the pot shots for them.

Addressing it now, Pandit is untroubled by, and even understanding of, the criticism his selection triggered. He defends himself without sounding defensive, saying, "You've got to put the noise in context."

He is less tolerant of arguments that he was unfit for the job-a charge that gathered steam in mid-2009 as a debate with the Federal Deposit Insurance Corp., where Chairman Sheila Bair questioned the lack of commercial banking experience in the top ranks at Citi, spilled into the public sphere.

Pandit acknowledges that he was short on exposure to the finer details of the consumer business, and he also had much to learn about the regulatory architecture overlaying and underpinning the bank sector.

"He didn't in a sense have a ticket punched in the way that bankers in the past might have gotten to the top at Citi or elsewhere," observes Michael Useem, a Wharton finance professor who interviewed Pandit on stage for a student forum in September 2008, 10 days after the collapse of Lehman Brothers. (Given the timing, Useem still marvels at Pandit's "unbelievably cool" demeanor during the event.) "Maybe what the board saw in him is huge intellectual firepower, which given what Citi was facing at the moment did come down to being a vital quality that was needed."

Pandit was born in India and came to the United States at the age of 16. He went to Columbia University and studied engineering until he acknowledged his apathy toward the subject. He steered his studies to the field of finance, and got his PhD in the subject in 1986.

Pandit had worked briefly as a professor at Indiana University before leaving academia for Wall Street. He spent 22 years at Morgan Stanley, rising to the top of the institutional clients business and getting groomed for the CEO role. Although his tenure there was cut short by the cultural upheaval and epic power struggles that followed the firm's merger with Dean Witter, Morgan Stanley prepared Pandit for the institutional side of the Citi franchise.

The firm also shaped his views about risk management, from both a theoretical standpoint and a practical one.

It was at Morgan Stanley where Pandit met Brian Leach, who had been risk manager for the firm's institutional securities business before co-founding Old Lane with Pandit. Leach was made chief risk officer at Citi in March 2008.

"The first year, year and a half, was coming in every day just trying to find the foundation," Leach says. This would not exactly be foreign territory for him. Leach had been one of the six managers put out on loan by a consortium of major financial firms to help with the liquidation of Long-Term Capital Management in 1998 and 1999.

At Citi, Leach assembled an organization that could triangulate risk, realigning the group with Citi's operations across business lines, product lines and geographic regions.

"He basically blew up what we had and remade it in the image of what he thought a strong risk-management organization should have," says Cliff Rossi, a former chief risk officer for Citi's consumer lending group. "I'm sure that has Vikram's handprints all over it as well."

Now a teaching fellow at the University of Maryland's Robert H. Smith School of Business, Rossi recalls sitting in a Citi global consumer group managers' meeting where Pandit announced that the elevation of risk management would be his legacy at Citi. Therefore, the new CEO told the group, Pandit saw himself as the head of risk management.

"I had never heard a CEO express it that crisply before," Rossi says, "and I actually believe it."

As new risk practices took hold at Citi, and as concern about the company's near-term viability receded, Pandit was able to start moving away from the hub-and-spoke reporting system he put in place three years ago to handle the demands of the crisis.

"We had a management structure where I needed to be at the center, and lots of things were coming at me simultaneously," he says.

Now he can delegate more day-to-day decision-making to lieutenants like John Havens, another Morgan Stanley and Old Lane alumnus, who is chairman of Citi's alternatives business and, since January, president and chief operating officer of Citigroup.

Without volunteering any names, Pandit readily discusses his thoughts about succession planning and the importance of cultivating management talent. It isn't likely he will need a successor for at least another four years-Citi has just given its CEO a lucrative retention-award package with profit sharing, options and deferred stock, some of which doesn't vest until 2015-but Pandit wants Citi prepared when it comes time for him to exit.

"I think about it every time I meet our people," he says.

"There are lots of people who can do this job. There are different levels of readiness, and it's my job to put people in the right spots, to develop them correctly, and there's a lot of teaching that's involved in these roles," the former professor says. Sometimes, he adds, "I ask questions just to hear the answers."

But there is one question Pandit won't find answers to until sometime after he leaves Citi: did he, by his own definition of success, get the job done?

"The most important job for a CEO," Pandit says, "is to find a successor. Period. It is by creating an organization that can create the next team that can run it that you ultimately determine your success."

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