Finance industry analysts and pundits scrambled Tuesday morning to explain the sudden departure of Citigroup Inc. (NYSE: C) Chief Executive Vikram Pandit, who unexpectedly resigned just a day after announcing what many on Wall Street considered to be excellent quarterly results.
Pandit, 55, was replaced by Michael Corbat, 52, who has been running the bank's operations in Europe, the Middle East and Africa. In addition, the board said President and Chief Operating Officer John P. Havens, 56, who also served as CEO of Citi’s Institutional Clients Group, resigned. Havens said he had already been planning retirement from Citi at year's end but decided, in light of Mr. Pandit’s resignation, to leave now.
“Something’s wrong here. Something’s wrong. Something’s very wrong,” CNBC analyst Jim Cramer said during an early morning broadcast in which he lavished praise on Pandit, noting that the executive had been instrumental in moving Citigroup back to being a global player following the financial crisis of 2008 and was beginning to “get it right” in terms of delivering profits.
“This is the point when you give him a big raise,” Cramer added, speculating -- and later citing anonymous sources to confirm -- that the Citigroup board of directors had forced out the chief executive.
Pandit himself noted Monday’s “third quarter earnings announcement ... demonstrate definitively that we have turned this company around” in his letter to employees announcing the resignation. He added that he “couldn't be more optimistic about the bank's future.”
While anonymous leaks continued to come out of the bank throughout the morning, early theories suggested Pandit likely departed after a showdown with the board over strategy or compensation.
The Wall Street Journal, citing “people with knowledge of the bank,” said Vikram “stepped down following a clash with the New York company's board over strategy and operating performance at businesses, including its institutional clients group.”
David Trone, a banking analyst for broker JMP Securities, said the departure was likely due to a “run-of-the-mill disagreement on the future, on the strategy” -- but it probably didn't help that there may have been a shared sense among the board members that the 2009 decision to sell part of Citigroup’s Solomon Smith Barney division was a strategic error.
“The Smith Barney transaction was terrible for Citi in hindsight,” Trone said.
Regardless of the reason, the move was widely seen as unexpected.
In August, the Journal reported that Pandit was working on choosing a successor but had “told colleagues that he intends to stay for several years.” Instead of an orderly transition, Tuesday’s event was more of a management bloodletting, with John Havens, Citigroup’s president and chief operating officer, also following Pandit out the door.
"There's shock," a Citigroup executive based in New York told the Journal Tuesday. "Even senior people were surprised."
Not everyone was taken aback by the announcement, with some noting Citi stock has lost more than 86 percent of its value in the five years since Pandit took the helm -- a period during which he pocketed $260 million in compensation.
“Pandit's heart clearly wasn't in it anymore. He certainly wasn't willing to go the distance like his counterpart, Jamie Dimon,” New York City investment adviser Joshua Brown wrote in his blog. “No, in the end, Pandit simply didn't have it in him to play this role any longer. You can't be half a gangster.”
Former FDIC Commissioner Sheila Bair, who savaged Pandit in her behind-the-scenes book on the financial crisis, said in an interview with Bloomberg TV that the Citi board “should be commended” for having pushed Pandit out.
Bair explained that, in her interactions with Pandit during the financial crisis in 2008, she “did have concerns about Mr. Pandit’s qualifications to serve as the CEO of the largest commercial bank, because he had never been a commercial banker.”
“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,” Bair added.
Darker conspiracy theorists also suggested Pandit’s departure could be a prelude to “a bomb perhaps yet to go off,” most likely in relation to Citigroup’s legal exposure to the still-unfolding Libor rate-rigging scandal.
"I have no idea why he is leaving the company. My wild guess it has something to do with Libor," Richard Bove, an outspoken banking analyst for Rochdale Securities, said.
The consensus, however, was that Pandit simply had a showdown with his directors ... and lost.
Discussing the rumors on succession planning earlier this year, CNBC early morning show hosts explained how Citi had begun to undertake that process when they realized they didn’t have a plan “should, God forbid, [Pandit] get hit by a bus.”
“He got hit by a bus, alright,” Jim Cramer, one of the hosts, noted, “a bus called the board.”