Does Big Loss Pose a Threat To John Reed?
With Citicorp's announcement Tuesday of an $885 million loss, debate began anew on whether the company's chairman can keep his job.
For nearly a year, people inside and outside the bank have been whispering about the future of John S. Reed. When he announced a five-point plan last January that shifted the bank's strategic thinking in a major way, many observers said the charismatic chairman had bought himself time.
If the bank began showing that it could earn its way out of its troubles -- as Mr. Reed claimed it would -- he would be able to soothe his board, regulators, and even angry shareholders.
After Tuesday's announcement -- which was coupled with an indefinite suspension of the company's commonstock dividend -- many people now think Mr. Reed, 52, is living on borrowed time.
Board Losing Patience?
"I would think the board is beginning to lose patience," said Brent Erensel, an analyst at Mabon Nugent & Co. "In January, ... I certainly wasn't questioning his employment prospects. With the dividend omission, you have to start to. This is his last opportunity to generate some results."
Several analysts, along with executive search consultants and former employees, now speculate that Mr. Reed has until December 1992 to fix the problems. A few pessimists believe he will remain only until a successor can be found.
His turnaround task has not gotten easier, Mr. Reed acknowledges. But he told analysts and reporters Wednesday -- as he had told bank employees a few months earlier -- that he and his management plan continue to enjoy the board's support. "They think we're doing the right thing," he said.
Slow Economy Blamed
Mr. Reed blamed much of the company's problems on a sluggish economy that has revenues coming in $700 million below projected levels. As a result, he pledged to renew his efforts to change a spend-for-the-future culture that he once promoted.
He now plans to cut costs by $1.7 billion by the end of 1992, up from a previously announced goal of $1 billion. That means more layoffs, more angry employees, and the possibility of reduced productivity. Citicorp has laid off 6,000 employees this year, and some analysts predict an ultimate work force reduction of 25%.
The company employed 90,000 at the end of the second quarter.
"It's incumbent on Reed and other senior management to make sure that [a productivity slowdown] doesn't happen," said Robert Albertson, an analyst at Goldman, Sachs & Co.
Hard to Replace
A big plus for Mr. Reed is the fact that he would be hard to replace, according to many observers. Running the nation's biggest banking company is a plum, but it also can be a nightmare, several headhunters said.
After seven years at the helm, Mr. Reed also has stamped his imprint on the bank. He built his reputation as a ruthless costcutter in back-office operations. Though he largely abandoned that approach as chairman -- turning instead to empire building, or investing in businesses of the future, as he termed it - he still has lots of believers in his abilities.
"I think [this restructuring] marks a bottom in the stock," said Frank DeSantis, an analyst at Donaldson Lufkin & Jenrette.
Others, however, no longer believe that Mr. Reed can achieve his goal of increasing gross profits by $2.5 billion by the end of 1992. Mr. Reed says it will simply require another $1.1 billion in cuts - or $700 million more than anticipated. But some analysts said that estimate is based on a cross-your-fingers assumption that increases in nonperforming loans will soon taper off.
Even Mr. Reed acknowledges that a bottom in the real estate market is at least six months off. Moreover, there is no certainty that consumer delinquencies in the bank's weakening credit card sector have peaked.
"Reed acknowledged that the consumer bank's success is tied to unemployment," said Charles Peabody, an analyst at Kidder, Peabody & Co. "I think unemployment in the [states where Citicorp's consumer presence is greatest] is going higher."
May Step Aside Voluntarily
Mr. Peabody also said that Mr. Reed may ultimately decide to step aside voluntarily by December 1992 because his current task runs contrary to his personality. "Reed is a visionary, and he likes to be able to spend. That suits his personality more than ... being a repairer."
Analysts also criticized Citicorp for failing to deal forcefully with its low level of loan-loss reserves. If the real estate market continues to deteriorate, Citicorp might have to dip deeply into its strained capital.
Mr. Reed, who betrayed little sign of personal strain at Wednesday's meeting, is apparently well aware of the speculation about his future.
At the end of the analysts session, in his typically ingratiating manner, Mr. Reed proclaimed: "I said at the beginning of the meeting, I had expected to be back around Christmas. I still expect to be here around Christmas. See you then."