Vikram Pandit's abrupt tumble from atop Citigroup is the latest example of the bank's transformation from the model of big-tent banking into a dysfunctional freak show.
The bank's stock price initially jumped 2 percent on the news of Pandit's unexpected departure Tuesday morning, a sign that investors agreed with the board's decision, which came without warning just a day after the bank reported well-received quarterly results. Clearly, shareholders had reason not to be thrilled with Pandit. But they also need to be wary of cheering too much for a move that was handled so bizarrely -- the latest in a long string of them.
"The hand-off could not be more awkward for investors to digest," CLSA bank analyst Mike Mayo said in an email. "The transition of the CEO reflects a microcosm of the poor corporate governance under Vikram Pandit."
The trouble for Citi is that poor corporate governance may not just be a problem that Pandit's departure can solve.
It is not a stretch to imagine the board was tired of Pandit's tenure, which has hardly been smooth. Though Pandit has reportedly insisted that the decision to leave was his own, Bloomberg reports that the board had finally had enough after a series of Citigroup stumbles. Since he took office in December 2007, Pandit oversaw a nearly 90 percent decline in the bank's stock price, while taking home some $260 million in pay -- even after collecting a token $1 salary for a couple of years after the financial crisis.
Shareholders in May rejected Pandit's $15 million pay package, in what seemed a shocking reprimand at the time. Months later the issue of Pandit's pay is still unresolved. And the Federal Reserve in March swatted down the bank's plan to give money back to shareholders.
Other costly setbacks were directly tied to Pandit: The bank bought Pandit's Old Lane hedge fund for $800 million at the peak of the stock market in 2007 and shut it down less than a year later, taking a $200 million write-down.
And in what may have been the final straw, the bank was hit with a charge of nearly $3 billion in the third quarter to write down the value of its interest in the brokerage firm Smith Barney, control of which Citi ceded to Morgan Stanley, ending a relationship that began on Pandit's watch in 2009.
"The Smith Barney transaction was terrible for Citi in hindsight," JMP Securities analyst David Trone told CNBC.
Former Federal Deposit Insurance Corporation Chairman Sheila Bair, who in her new book, "Bull By The Horns," said she didn't think Pandit was qualified to run a bank the size of Citigroup, repeated that sentiment in an interview with Bloomberg Radio.
"I saw not a good ability to execute, not a good ability to have information, which I thought was pretty basic for anyone managing a large institution ... This was a concern to me," Bair told Bloomberg.
"I wish Mr. Pandit well, and I think he's got skills that may be well suited at a different type of organization, but we did see problems with execution," she added.
Many others suggested Pandit had done the best job he possibly could with the basket case that he inherited when he took over Citigroup at the dawn of the financial crisis. The bank ultimately took $45 billion in bailout money and has been a ward of the government for most of the years since. Some observers suggested that Pandit was simply exhausted after steering the bank through the financial crisis.
"The institution faces both a difficult regulatory environment and the likelihood that regulators will want to see large banks run as conservative, dull institutions," said Daniel Alpert, founder of the New York investment bank Westwood Capital.
Pandit has, by some accounts, done an admirable job of getting the bank back on the right track and of beginning the process of shrinking it. But, according to reports from CNBC and The Wall Street Journal, Pandit was forced out abruptly after clashing with Citi's board over strategy. The international experience of Pandit's replacement, Michael L. Corbat, suggests the bank may want to focus more on its international business.
There are also reports that the board wanted the bank to get smaller and more focused more quickly -- a view apparently at odds with Pandit's publicly held view that the bank was doing just fine as the somewhat rickety template for 'too big to fail' banking. Even former CEO Sandy Weill, who had built up Citi in the 1990s, has given up the big-bank model to which Pandit was clinging.
Still, did Citi really have to send Pandit and his right-hand man, president and chief operating officer John Havens, packing in the middle of the night? As Forbes' Nathan Vardi notes, this is the latest disastrous CEO transition for Citigroup, stretching back to Chuck Prince's ascendency in 2003. Prince, who famously said his bank would have to keep dancing as long as the music was playing, was hand-picked by Weill but unready for the job.
Weill and another former Citi executive, Robert Rubin, who took part in most of the bank's disastrous past decisions, are long gone -- yet the drama continues. Pandit was the lucky guy on hand when it came time to throw Prince under the bus, and now he knows just how those wheels feel.
Corbat should look both ways when crossing the street.