CEO Of The Decade: Citigroup’s Vikram Pandit?

It was less than two years ago that defunct business magazine Portfolio named Citigroup(C) CEO Vikram Pandit one of the twenty worst CEOs of all time. Pandit may be about to jump on the list of greatest turnaround CEOs, if his forecasts about the bank’s performance are correct. According to the FT, Pandit “will on Thursday raise the prospect of the US bank earning as much as $20bn from its core business within a few years.” The paper adds that Mr Pandit will estimate that Citicorp could earn a yearly return of 1.25 per cent or more on its assets. The unit had assets of more than $1,300bn at the end of 2009, but Citi executives estimate the assets will increase by about 5 per cent a year. On that basis, Citicorp could earn about $20bn by the end of 2012.

Pandit has clearly not learned one of the most important lessons for public company CEOs—under-promise and over-deliver. Citigroup still faces years of trouble with its exposure to the consumer credit market and the consumer and commercial real estate sectors. The liabilities from those exposures will be a substantial drag on the banks earnings through the middle of the decade. Citi will also be hurt by new legislation that will cut hundreds of millions of dollars of fees that it charges its customers for services like overdraft protection and penalties for late payments on credit cards.

Citi Holdings has been set up to hold and sell assets that the big bank does not want to keep. These include nearly a quarter of a trillion dollars in toxic assets. The financial firm may not find ready buyers for most of the businesses on the Citi Holdings balance sheet.

One of the largest obstacles to a sharp turnaround in the bank’s fortunes is legislation which could severely restrict proprietary trading at banks which have commercial bank operations. Citi could greatly improve its returns if it could produce only a fraction of the results that Goldman Sachs does when trading for its own account.  But, Citi and its rivals may be forced out of that business before they get a chance to aggressively pursue the Goldman model the way that they tried to before the credit crisis.

Pandit actually has a very small chance of delivering on his forecasts.

Douglas A. McIntyre