Vikram Pandit's CITI cacaphony
In Crash: Lessons from the entry and exit of CEOs, author R Gopalakrishnan outlines the challenges of remaining a CEO – the troubles, anxieties and ultimate resilience essential in the face of financial adversity. Excerpts:
Vikram Pandit did not see it coming! The day of 16 October 2012 was a happy one for him. He was on a roll, replying to congratulatory emails on posting a good third quarter earnings (some viewed the results as mixed). This suggested that the bank was finally on strong terra firma. He strode into the chairman's office for what he thought was a regular meeting. But what he was to face was a bolt from the blue!
He was given three choices, rather three news releases, designed to seal his fate at Citigroup! The first one stated that he had resigned with immediate effect; the second: he would resign at the end of the year; and third: he was fired without any cause!
Now he had to make a choice of how he would make his exit graceful!
The encounter with the chairman, Michael E. O'Neill, was abrupt with a terse statement, 'The board has lost confidence in you . . .'
The picture painted publicly was that Vikram left of his own accord, but interviews with people close to the situation showed that his exit was in the works since many months, and the plan was to replace him with a person close to the chairman.
When the announcement of his exit became public, the industry, the market and the shareholders reacted with disbelief. The premise that Vikram was penalized for financial underperformance didn't hold water as the bank had posted good results. The question then remained, 'Why had the bank treated its top executive so harshly?'
Vikram Pandit – Early Years
Vikram was born in 1957 to an affluent Maharashtrian Brahmin family in Nagpur. His father was an executive director at Sarabhai Chemicals in Baroda.
Vikram completed his early years of schooling in Nagpur and Mumbai (then Bombay) and moved to the US at the age of sixteen to study at Columbia University. He went on to complete his master's in electrical engineering, followed by a PhD in finance from Columbia Business School in 1986.
For a while he taught economics at Columbia, and at Brock University, Canada. In 1983, he joined Morgan Stanley as an associate; he was one of the first Indians to do so. The next seven years saw Vikram climbing the corporate ladder to become the MD and head of Morgan Stanley's worldwide institutional securities division, and finally reach the post of president and COO. In 2005, after serving for two decades, he left the organization along with his colleague, John Havens.
Entry into Citigroup
In 2006, Vikram went on to set up his own hedge fund, along with John and another former colleague at Morgan Stanley. He later sold the fund to Citigroup for $800 million, and got into a leadership role at Citi, where he was named chairman and CEO of Citi Alternative Investments.
Citi soon began to unravel as it could not stand the aftermath of the financial crisis. The company too had made its share of dicey real estate investments in subprime mortgages.
Vikram was soon called upon to sort out issues in the company's marketing and banking divisions by the chairman, Chuck Prince.
'I was running our alternative business in midtown. One day Chuck [Prince] called and said: "Vikram, I need you downtown [at the bank's Greenwich Street banking and markets hub] to help sort out our market positions. Put the right people in place and then go back to doing what you were doing before." I respected Chuck, and could not turn him down. And once I had made the decision to go downtown, I owned it. There was no going back.'
Chuck was shown the door for being unable to see Citi through the subprime losses of $11 billion it posted in the wake of the financial crisis that had ravaged pretty much the entire financial system of the US. Fellow Citi director, Robert Rubin, took over as chairman after the departure of Chuck Prince. And to shore up, Citi had approached the Abu Dhabi Investment Authority for a fund infusion of $7.5 billion. In the interim, Robert Rubin functioned as the chairman. Simultaneously the search for a CEO was on.
Many names did the rounds: Josef Ackermann of Deutsche Bank, Bob Diamond of Barclays, and Jamie Dimon who had been forced out of Citigroup by Sandy Weill.
Elevation as CEO
Vikram's elevation in 2007 as the CEO of Citigroup was strongly supported by Robert Rubin. Though he got to the top position at Citi, he was termed as an unlikely choice in a world that was dominated by white, alpha males who were known for their schmoozing skills, whereas Vikram was perceived as a 'bookish Indian immigrant' known for his financial prowess.
Citi was a universal banking behemoth, employing about 4,00,000 people, and Vikram was seen as being quite inexperienced when it came to the foundation business of Citi, the consumer and the commercial banking businesses. However, Robert had full faith in Vikram. 'The combination of his deep executive experience and long history as a strategic thinker makes Vikram the outstanding choice to be Citi's chief executive,' he said. But not many thought he was the right choice to take on one of the toughest jobs in the banking industry.
When Vikram took over, he made observations about his appointment as the CEO and the changing industry:
' . . . given that Citi was involved in so many parts of banking, it would have been hard to find a candidate with experience across all of them . . . most of the problems stemmed from issues in the investment banking and trading parts of Citi . . . I had a great deal of experience from my career at Morgan Stanley. It was clear that the world had changed . . .The previous environment of seemingly limitless pools of liquidity and capital had come to a sudden end. Citi had to change too . . .'
Transformation at Citi became Vikram's prime goal. The company was perceived by Vikram to be unnecessarily complex, and as a consequence, the resources were not aligned with the priorities in a systematic manner. It was more about what not to be, than what to be. Being a supermarket was not a strategy. Vikram had taken over Citi at a difficult time in the history of banking. The write-downs were increasing, touching almost $25 billion in 2008, courtesy the doubtful investments made. As a result, Citi had to reach out for capital infusions to some of the richer Middle East investment houses. To put things in order, some of the immediate steps were to lessen the financial stress, redefine the strategy, get the right people and instil a culture of strong execution.
However, with the Lehman Brothers collapse, the game to survive became tougher. Capital began drying up, and Citi too was on the verge of collapse. Regarded as the mightiest bank, Citi was forced to take the US government's bailout to shore its existence. Vikram decided to accept a salary of $1 starting 2009 till normalcy returned to the market and the condition of Citigroup was stabilized.
Vikram followed the strategy of sticking to the core business. He and the COO, John Haven, found that the company operations were disjointed, and were also merely stitched together to keep things moving. 'Everything in Citi was in silos. Each business had everything replicated – from buying the coffee to doing the accounting. We even had three different ways of taking part in US Treasury auctions: the Citi platform, the old Salomon system and the Smith Barney system. No one ever paid attention to it,' said Vikram.
Vikram went on to dismantle non-core assets and hived them off into a separate entity – Citi Holdings. In it went the iconic brand of Smith Barney and its long-standing building block of local consumer lending. Some of his decisions on divestment were perceived as a threat to the future of Citi. As John Havens summed up, 'Being the biggest is no longer a definition of success here. It doesn't work – it costs money, and it leads to hubris. I don't want to be number one in everything. But I do want my clients to think we are the best at what we do.'
(Excerpted with permission from Crash, written by R. Gopalakrishnan; published by Penguin Random House, under their imprint Penguin Portfolio. The excerpt here is a part of a chapter titled 'Vikram Pandit at Citi Group')