Vikram Pandit is doing some serious spring cleaning at Citigroup.
Since becoming chief executive in December, Pandit has been clearing out the corporate attic of weak businesses and unloading worrisome assets at bargain-basement prices.
In an effort to streamline the sprawling company and placate restive shareholders, Pandit has sold or closed more than 45 branches in eight states. He has also unloaded Citigroup’s headquarters building in Tokyo and its investment-banking base in New York and ditched more than US$12.5 billion in loans used to finance corporate buyouts. And he has jettisoned the Diners Club credit card franchise, Citi’s commercial leasing divisions and a big pension administration unit.
Pandit is not done yet. After months of false starts, Citigroup is trying to sell Primerica Financial, a life insurance and mutual fund company, according to people close to the situation. He is also looking to sell Citigroup’s back-office outsourcing unit in India and its Smith Barney brokerage firm in Australia. Some speculate he also may try to sell 340 bank branches in Germany.
Put together, all these sales could raise billions of dollars for Citigroup at a time the bank is feverishly raising capital. Yet the moves also reflect a crucial shift in how Pandit plans to run the bank.
Pandit was due to lay out his vision yesterday in his first major presentation to investors and Wall Street analysts. Pandit is intent on keeping Citigroup together, rather than carving up the financial conglomerate, as some investors are urging. But in a break from the financial supermarket model championed by Sanford Weill, who built Citigroup through acquisitions in the late 1990s, Pandit plans to focus on businesses and regions where Citigroup can generate the fattest returns.
At the same time, Pandit vows to “break apart the culture” and demand better performance. To do so, he has brought in executives and overhauled compensation so his managers have incentives to focus on what is best for the entire company, rather than their own corner of it.
“If it’s only thinking about my profits and losses, I’m going to hold that person accountable,” Pandit said in a recent interview.
The big question is whether Pandit can pull off this plan. His predecessor, Charles Prince III, made similar promises but lacked the operational skill to keep the company on track. Many investors are skeptical, and with good reason: Citigroup’s share price has fallen 17 percent this year and is down 55 percent in the last 12 months. Many Citigroup employees are doubtful, too.
But many analysts say more Citigroup businesses will be up for sale.
Citigroup’s stand-alone consumer units, like its auto and student lending operations, are natural candidates. But the company might wait for better market conditions before pursuing a deal. Another business that might eventually be spun off is Citigroup’s credit card operation, which Pandit has kept separate from the company’s consumer operations and which has been hampered by sluggish domestic growth.
As Citigroup slims down, some analysts worry that Pandit might go too far and sell too much at fire-sale prices. Doing so might sacrifice future earnings and market share.