NEW YORK Citigroup Inc. named Vikram Pandit, the head of its investment banking business, as its chief executive officer Tuesday, charging him with restoring the bank's profitability and reputation after missteps in lending and investing left Citi with billions of dollars in losses this year.
The banking company named Sir Win Bischoff, who has been Citi's acting CEO, as its chairman.
Pandit, who ran a hedge fund bought by Citi earlier this year, is seen as a careful, decisive investment banker qualities Citi needs following the ouster last month of Charles Prince and the revelation that Citi's writedowns of soured mortgages could amount to as much as $17.5 billion by the end of the year.
The appointments came after a two-day meeting of Citi's board.
Pandit is well known on Wall Street, having worked at Morgan Stanley for two decades until 2005, when he and a few other disgruntled colleagues left the brokerage and founded the hedge fund Old Lane Partners.
Earlier this year, Citigroup bought Old Lane for $800 million and put Pandit in charge of Citi's alternative investments. A few months later, Pandit took over the bank's markets and banking unit as well, and then reconfigured the business to mirror the Morgan Stanley structure he was familiar with.
His performance as Citi's leader will undoubtedly be scrutinized by investors until they see positive results including his willingness to challenge the Citi strategy of the past several years. One question on Wall Street is whether Pandit will be beholden to the Citi board, which has remained steadfastly loyal to the Sanford Weill regime. Weill, a board member, built Citigroup through a series of mergers and acquisitions over the past few decades, and many have attributed the bank's failings this year to the Weill culture: Prince was his hand-picked successor.
Bischoff was the chairman of the British investment bank Schroders PLC, then joined Salomon Smith Barney Inc., a subsidiary of Citi, when it acquired Schroders. He began his current position in May 2000. He succeeds Robert E. Rubin, who temporarily filled the chairman's position after Prince's departure.
Unlike Merrill Lynch & Co., which took just two weeks to find a replacement for Stan O'Neal, its embattled CEO and another casualty of the mortgage crisis, Citi's search dragged on. Merrill's nab of John Thain, a Goldman Sachs alum who turned around the once-troubled New York Stock Exchange, eliminated him as a possibility for Citi.
Citi, with all its bad debt not to mention the hemorrhaging funds known as structured investment vehicles that it manages appeared to be a beast no one wanted to tame. According to various media reports, Citi's overtures to big names in the banking industry such as Deutsche Bank CEO Josef Ackermann and Royal Bank of Scotland CEO Frederick Goodwin were spurned.
Pandit faces multiple challenges. He must not only attract more cash to offset Citi's debt and bulk up the bank's risk management, but he also needs to strengthen Citi's lackluster consumer-oriented businesses and clean up its reputation.
Citi has shed about $120 billion in market capitalization this year, putting its market cap below that of Bank of America Corp. Citi is still the largest U.S. bank by assets, though, so while most major financial companies have seen problems navigating a surge in foreclosures and a freeze-up in credit, Citi's losses have been seen on Wall Street as particularly egregious.
Citi's cash levels will get a boost by the Abu Dhabi Investment Authority, which in late November bought a 4.9 percent stake in Citi for $7.5 billion. But the investment, while helpful in offsetting some of Citi's bad debt, is not a panacea. Many analysts and shareholders believe Pandit needs to sell more assets to bring in cash and make the huge conglomerate leaner. Citigroup has said non-essential assets selloffs are in the works, but many shareholders are hoping for more ruthless spinoffs such as Citi's brokerage arm, Smith Barney.
The board has been adamant, though, about not breaking up the bank.
Rubin, who led the search committee, said after Prince's resignation that they were looking for someone to focus on Citigroup's "multiplicity of businesses."
"It is very important that whoever we have has a strong international focus not necessarily enormous international experience, but can relate to the globalization of this institution and Chuck's (Prince's) strategy of having to ever increase that involvement," Rubin said at the time.
A few analysts have even tossed around the idea of another big bank like JPMorgan Chase & Co. and Bank of America Corp. buying or merging with Citi. But given regulatory obstacles and the credit market problems facing even the best-positioned banks, other analysts say such a deal is unlikely at this time.