Power Point: Find a new business model
“The world’s looking for a new business model.”
– Citigroup (C) CEO Vikram Pandit, defending his leadership, in an interview with CNN Tuesday. During the past week, news media outlets have reported that FDIC Chair Sheila Bair thinks Pandit lacks the retail banking experience to revive Citi and wants him out. Meanwhile, others speculate that Treasury Secretary Tim Geithner believes that Pandit deserves a shot at the turnaround and that a management change could do more harm than good.
Both Geithner and Bair play key roles in the approval of a $58 billion conversion of preferred shares into common stock, intended to shore up Citigroup’s capital. Announced in February and scheduled to occur in April, the conversion was held up by negotiations with federal officials. But it should happen this week, according to Citi. With that, the government will own as much as 34% of the bank. That’s a dicey investment. The stock, trading at $3.41, is down 83% in the last 12 months.
So what sort of new business model does Pandit forsee? “When you look at the last five, 10 years, there were two engines of growth. There was the U.S. consumer and credit creation. None of those are likely to be the engines of growth going forward…I’m optimistic that we might start seeing stability in the financial markets, but that’s stage one. Stage two is about what kind of world we want to have going forward, what’s the new business model? And that’s what we’re really focused on at Citi.”
And the question for you: Should Citi shareholders, including the government, give Pandit more time to deliver? –Jessica Shambora
As an employee, I’ve grown tired of Vik Pandit’s vague marketing-speak, and it’s only fitting to see more of the same now. Essentially, he’s saying that Citi is focused on the unknown. Is that how strategy is defined now? Nothing?
Jessica,
While Citi undoubtedly faces a future as a much smaller, less powerful institution, the problems that preceded this point are less of Vikram Pandit’s making and more those of Sandy Weil, Jamie Dimon and the M&A mania. Citi is what you might choose to call a “Frankenstein” institution – pieced together with many parts, none of which were ever correctly stitched together.
Criticize Pandit all you want, but at least he’s made the hard decision to divide the company in two. Roughly one-half of the business will ultimately be sold. This is a case study in the dangers of M&A. Pandit made the right decision there.
The credit crisis should serve as a warning to the U.S. government to not let banks like Bank of America or JPMorgan Chase get much larger from where they are today. At $2.3 and $2.1 Trillion in assets, respectively, they may already present too much systemic risk.
USBank CEO Richard Davis said it best in describing his bank as large enough to be relevant, but small enough to be manageable. Here’s to the super-regionals, not the super-markets!
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As an employee with the Auto Collections. I think its time for a change starting with the head. This is coming from a collector(s) point of view, these bad loans has to go. I seen changes that was not called for. We have lost money from these bad loans since I started; yet nothing has been done. Starting with the head Mr.Pandit and going down the ladder, has no clue to how it is ( in a collector’s world). They only look at numbers all day. Sometimes you have to look deeper. This is the main issue why we needed the government assistance and additional help. We have too much in bad portfolios and how certain policies have been written. Also you have to get info from your collectors,thats the only way you can get info about the clients you have and how they support your business.