Citigroup CEO Pandit Promises Shareholders the Moon
In an interview with the Financial Times, Pandit proclaimed yet again that the company built by Sandy Weill and Chuck Prince is dead. He even laid out a case in which -- by the newspaper's calculations -- the New York-based bank could swing from an $8 billion loss to earnings of as much as $20 billion in its "core business" by 2012.
Of course, that's easier said than done.
Pandit, whose job was in jeopardy not long ago, is unloading 40% of Citigroup's assets to bolster its balance sheet and extricate itself from the grip of the federal government, which owns a 27% stake in the company. On Wednesday, Bloomberg News reported that Citigroup was selling $2 billion of trust preferred securities, known as TruPS. Citigroup also will sell its real estate unit to private equity firm Apollo Management LP. That deal will give Apollo, based in New York, investments with a net asset value of $3.5 billion in 26 countries, according to Bloomberg.
Ever the Optimist
Like its peers, Citigroup is bracing for a potential implosion in the commercial real estate market. Any major economic relapse would send the company's recovery efforts back to square one. Meanwhile, Citi also needs to overhaul its toxic corporate culture, which allowed lines of business to behave like their own independent kingdoms.
But perhaps Pandit's biggest challenge is not to seem desperate when the whole financial world knows his situation is dire. As the Financial Times notes, "Citi still has to shed $540 [billion] in unwanted loans and consumer finance businesses -- about a third of its balance sheet -- whose results will hurt its performance for years."
Even with its run-up from the bottom over the past year, the company's stock isn't trading at even 10% of its $50 price from three years ago. Wall Street analysts also are bullish on the company, though it had been vilified by critics as a symbol of all that was wrong with the financial system. Ever the optimist, Pandit is urging shareholders to hang in there, promising them good things like share buybacks.
Genius or Fool?
"As the transformation proceeds, core earnings grows and, if the economy improves, we are going to generate a lot of capital and we are going to put it to use for the benefit of shareholders," he told the newspaper.
When the history books of the Great Recession are written, Pandit is either going to be hailed as a genius or a fool. For now, the jury is still out.