Frustrated with the pace of restructuring and the inability of the top management of Citigroup to clean up the bank's balance sheet faster, US banking regulator Federal Deposit Insurance Corp (FDIC) may ask Citi Group CEO Vikram Pandit to go.
Citing people familiar with the matter, The Wall Street Journal reported that FDIC chairman Sheila Blair is out to shake up the top management of the bank, jeopardising Pandit's job.
Blair is rumoured to have asked the US Federal Reserve to lower Citi's stress test results in April, in order to have more control over the bank, since the government has pumped in more than $300 billion in a loss-sharing agreement with Citi.
Last month, the government conducted stress tests on many US banks in order to identify individual strengths of the financial institutions and to see how well they were positioned to ride out the slump.
The results showed that Citigroup might need to raise as much as $5.5 billion in new capital (See: Citigroup may require $10 billion more in new capital: report) although the Federal Reserve estimated that in the worst-case scenario, the bank could face $104.7 billion in loan losses through 2010.
It also reported that despite the loan provision of over $4 billion for credit cards, auto and other unsecured loans, that Citigroup had made in the December quarter, it might be faced with nearly $20 billion in losses in its credit-card business as borrowers were finding it difficult to repay their credit card and other loan outstandings.
Citi has contested the preliminary findings of the stress tests with detailed rebuttals, also saying that Bair was over-stepping her authority.
The FDIC feels that the top management of Citigroup does not have experience in commercial banking since Pandit comes from a investment-banking background, while the bank's problem area is in the consumer loan division.
The Journal reported, quoting sources, that the US government has approached former US Bancorp CEO Jerry Grundhofer, who was appointed recently to Citigroup's board to find out as to whether he would be interested in the top job at the bank.
Citigroup chairman Richard Parsons is reported to have sent an email to some in the US media, stating that the bank had undergone rigorous stress test, which showed that its management had made considerable progress over the last 15 months in turning it around
He added that Citigroup has reduced its balance sheet by nearly 25 per cent and riskier assets by over 50 per cent and had raised a huge amount of capital. After the public exchange offer is over, he said that Citigroup will be the one of the best-capitalised bank in the world.
Pandit, the villain in FDIC eyes
Although Vikram Pandit was appointed last year by Citigroup, he has voluntarily reduced his monthly remuneration to a token $1 till the bank recovers from its travails.
Pandit had rubbed the FDIC and Blair in particular the wrong way, when Wells Fargo grabbed Wachovia just four days after Citi had agreed to acquire Wachovia's banking operations for a little over $2 billion, in a deal also brokered and backed by the US government. (See: Citi fumes as Wells Fargo steals Wachovia)
The normally quiet and soft-spoken Pandit is reported to have flown into a rage, launching an offensive tirade in a conference call against Blair for having turned back on the previous deal Citi-Wachovia deal, by brokering the Wells Fargo-Wachovia deal behind Citi's back
In January, Citigroup announced it would split its operations into two units, Citicorp and Citi Holdings. The move was made to separate the more traditional banking units from the riskier operations that had led to mounting losses at the New York-based bank. (See: Citi to split into two after $8.29 billion fourth-quarter loss)
Citigroup had reorganised its business into Citicorp, to focus on traditional banking around the world and Citi Holdings, to hold the company's bad or risky assets.
Citi Holdings houses $850 billion of assets that the New York-based Citigroup plans to sell or wind down. These include the Smith Barney brokerage, which is merging into a joint venture with Morgan Stanley's brokerage, the CitiFinancial and CitiMortgage finance operations, the Primerica insurance unit.
It also houses $300.8 billion of troubled assets in which the US government agreed in a November bailout to share losses.
Last month, Citigroup signed a definitive agreement to sell its Japanese brokerage firm Nikko Cordial Securities Inc., the brokerage and underwriting divisions of Nikko Citigroup for $5.5 billion but it will get approximately $2.5 billion after accounting for tax losses and freeing other tied up businesses.
The embattled financial-services giant offered last month to convert as much as $27.5 billion in preferred stock not held by the federal government to common stock, with the US agreeing to match up to $25 billion of the conversions in the latest effort to keep the banking giant afloat.
In April, Citigroup reported net income of $1.6 billion in the first quarter of 2009, recording its first profit since the third quarter of 2007. The bank also reported revenues of $24.8 billion, driven by strong performance at the institutional clients group. (See: Citigroup reports $1.6 billion profit, $25 billion revenue in Q1)
The profit was partially offset by net write-downs, including $7.3 billion in net credit losses and a $2.7 billion net loan loss reserve.
The bank increased capital position by issuing $45 billion of preferred stock and warrants to the US Treasury as part of the TARP. The Tier 1 capital ratio was approximately 11.8 per cent as on January 2009
Since the third quarter 2008, the bank has shed approximately 29,000 staff and approximately 52,000 in the full year 2008.
Despite all the changes made by Citigroup's management, the bank officials feel that the FDIC will push the bank along with 305 other US banks in the 'problem list', if it does not do away with Pandit and his fellow team members.