Tuesday, February 5, 2013

CITIBANK: VIKRAM PANDIT

More so when it wears the Citi crown! Is Vikram Pandit drowning in a vicious cycle? by Deepak Ranjan Patra

Pandit has made some progress to help Citi avoid slipping into oblivion last year by slashing a great chunk of its non-core assets and businesses. Moreover, Pandit has also managed to cut Citi’s payroll bills by almost 20% to $25 billion, by downsizing employee strength from a high of 375,000 to 265,000 globally. But then, it’s a competitive and comparative world. So when Vikram Pandit says, “We have made enormous progress in 2009... We greatly improved Citi’s capital strength, reduced the size and scope of the company, and refocused our business strategy to take advantage of our unmatched global network,” in a press statement, it raises a lot of eyebrows. From a loss of over $27 billion in FY2008 to just $1.6 billion is surely an enormous progress for Pandit, but it’s prone to questioning from the rational observer for two basic reasons. First, Citi’s peers are at a healthy profit; and second, Pandit’s excuse for the loss, $6.2 billion in debt repayment, is just a small part of $50 billion that the bank has taken from the government. Investors are concerned that the bank, wishing to return to the top of the tables, is still a clear laggard.

With the heat rising against him, Pandit has now decided to play new cards; by reshuffling the top honchos. Some of the moves are clearly well thought of. The most critical of the list is the replacement of Terri Dial, Chief Executive of Consumer Banking for the Americas by Manuel Medina-Mora, head of Citigroup’s Latin American businesses. The move, as believed at the Citi headquarter, is expected to bring in an overhaul in the retail banking business. But Pandit hired Dial amidst similar sentiments among his first major hires after joining Citi. Also, Medina-Mora has absolutely no banking experience in the hyper competitive North American retail market. Is this just a plain shot in the dark?

However, Pandit has received a little cushion from rating agencies like S&P, who left Citi’s ratings unchanged despite the weak Q4 results. The agency finds Citi’s financial performance stabilising. Scott Sprinzen, Primary Credit Analyst, S&P tells B&E, “Citi has completed a number of major actions during the past 18 months to offset the impact of net losses on its equity base, increase its total capital, and bolster the quality of its capital.” Also net additions to the loan-loss reserve ($802 million) were the lowest in several quarters and total allowance for loan losses stands at a satisfactory level of 5.9% of total loans. Adds Tanya Azarchs, Secondary Credit Analyst, S&P, “Cost-cutting efforts continue to yield results.” (Citi refused to comment).


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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