Vikram Pandit’s job was to cut Citigroup (C) down to size. "Reverse the insanity of the empire builders who came before you", his investors said. Dump the damaged assets and maintain the solid core.

Pandit’s role was to be the King Arthur of a much smaller Round Table. Some knights would be dispatched, but it was all in the name of the common good.

During his first six months on the job, Pandit nearly lost it all. Skeptics will always ask whether he was doing his best, and Citi came close to failing more that once. There was talk about a forced liquidation of the big bank. Even Pandit’s friends stopped taking his calls.

With a sensible bow to the pressure, Pandit vowed to cut 20% of Citi’s operating expenses. It was an overambitious statement, but just what investors wanted to hear. Citi raised enough money so that Wall St. was willing to concede that the firm might make it.

Now that Pandit has had a few weeks to breathe, he has decided that a much bigger company is the best way to go. He is in negotiations to buy Washington Mutual (WM), one of the most troubled financial companies in the annals of American banking.

According to The Wall Street Journal, "Citigroup is eager to expand its U.S. retail-banking network."

As a mortgage bank, the nation’s largest, WaMu’s exposure to the housing crisis outstrips that of any other financial firm. If housing prices continue to drop, it is hard to see how Washington Mutual stays away from even deeper trouble.

The last time anyone looked Citi was still losing money and a number of analysts predict it will lose money again this quarter.

Perhaps Pandit just woke up on the wrong side of the bed, but by deserting his cautious nature he is about to risk Citi’s turnaround again.

Douglas A. McIntyre

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