Citigroup (C): Pandit As Pollyanna

One of the hedge funds that Citigroup (C) bought from its CEO Vikram Pandit’s money management company, an operation called Old Lane, has gone belly-up. Pandit got $165 million from the deal and was eventually made head man at Citi as a booby prize. To overcome the embarrassment, he can hide in the executive washroom for a day. By the time he comes out other, more pressing problems, will be barreling down on the bank.

Pandit’s sin is not that he made a sale to Citi which did not work out. He has done something much worse. On his watch as CEO, he has accomplished next to nothing. The firm’s stock dropped below $20 yesterday. It is the first time it has been that low since March. The perception is that Citi is still one of the weak Wall St. firms that it not in the midst of a turnaround.

Pandit’s hand may be weak, but he has played it poorly. In April, the new man in the corner office said he would cut Citi operating costs by 20%. There is absolutely no evidence that the program is even under way. Shareholders expected him to gut the place of assets which are not critical to operations, Smith Barney often makes that list, but, whatever the list, nothing has been done.

Pandit now looks like a man who believes that Citi will fix itself because the credit markets will eventually fix themselves. If he waits the current storm out, things will be fine.

What Pandit may not have noticed is that the tempest is getting worse. Standing by and waiting for the end is not a winning strategy. Having the hedge fund he sold to Citi being closed is humiliating. The way he is running the bank is worse.

Douglas A. McIntyre