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Citi Taps Investment Banking Head As CEO

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MADLEN READ | December 11, 2007 07:08 PM EST | AP

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NEW YORK — Citigroup Inc. named Vikram Pandit, the head of its investment banking business, as chief executive Tuesday, after searching five weeks for someone to restore the bank's profitability and reputation.

The banking company named Sir Win Bischoff, who has been Citi's acting CEO, as its chairman. He replaces Robert E. Rubin, who had stepped into the role when former CEO and chairman Charles Prince was ousted last month.

Pandit, 50, ran a hedge fund bought by Citi earlier this year, is seen as a careful, decisive investment banker _ qualities Citi needs following the revelation that Citi's writedowns of soured mortgages could amount to as much as $17.5 billion by the end of the year.

Bischoff, meanwhile, has led Citi's European businesses, answering many shareholders' complaints that Pandit does not have the overseas experience to guide the sprawling bank's operations in Europe, Asia, Africa and Latin America. Before joining Citi in 2000, Bischoff, 66, was chairman of the British investment bank Schroders PLC.

The appointments came after a two-day meeting of Citi's board.

Pandit is well known on Wall Street. He 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, too, 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.

During a conference call with analysts, Pandit suggested he was open to selling certain units, as long as the sales were beneficial to the company.

"I will undertake an objective and dispassionate review of all the businesses, individually and in aggregate, to make sure we are properly positioned for the future," Pandit said.

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. And Citi board member Rubin, the former Treasury Secretary who led the CEO search committee, decided he did not want to stay chairman.

Rubin said, however, that he anticipates "a long and active role at Citi." He remains chairman of the bank's executive committee.

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.

Citigroup said in a regulatory filing that it has not yet determined Pandit's compensation. In 2006, Prince received nearly $25 million in pay.

Citi's stock has fallen about 40 percent this year, shaving off about $120 billion in market capitalization and putting it below that of Bank of America Corp. Its shares fell $1.54, or 4.4 percent, to $33.23 Tuesday when most shares fell after the Federal Reserve announced _ at the same moment that Citigroup unveiled Pandit's promotion _ that it was cutting the federal funds rate by one-quarter percentage point to 4.25 percent.

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 surgery.

The board has been adamant about not breaking up the bank.

Rubin said after Prince's resignation that the search committee was looking for someone to focus on Citigroup's "multiplicity of businesses" and with "a strong international focus."

Pandit, though he spent his childhood in India, has little experience with banking abroad. His strengths are his decades on Wall Street and his analytical mind.

"Under the circumstances, I can't think of anyone better qualified to untangle Citigroup than Vikram Pandit," said Barton Biggs, who was Morgan Stanley's top strategist and worked with Pandit for two decades. Biggs, now the head of the hedge fund firm Traxis Partners, called Pandit intelligent, and not one to make "lightning-quick decisions."

"That doesn't mean he's not decisive _ he's thoughtful and careful," said Biggs, who is also a Citi shareholder. He added that many colleagues have followed him from Morgan Stanley to Old Lane to Citi.

Even in the years that Morgan Stanley struggled, the investment banking unit did well, in large part because of Pandit, said Punk Ziegel & Co. analyst Richard Bove. "He proved at Morgan Stanley he could build a strong capital markets business."

But neither Pandit nor Bischoff have significant experience in consumer banking, which brings in half of the company's profit and which, compared to its peers, has seen lackluster results.

Pandit has also never run a large public company. And some see his lack of flash and pizazz as a drawback _ though to others, a cool, quiet demeanor in the top spot could be just what is needed at a company often criticized as arrogant.