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Post by Franko10 ™ on May 9, 2008 8:32:40 GMT -5
Coming soon: Citigroup's grand plan
CEO Vikram Pandit has promised to reveal on Friday his strategy for reviving the troubled bank. Will he deliver?
By Carol J. Loomis, senior editor at large
NEW YORK (Fortune) -- D-Day for Citigroup is Friday - and thank heavens it's finally arrived.
For months, analysts and reporters trying to understand what CEO Vikram Pandit and crew are strategizing to do with this monster financial institution have been told to wait for Investor Day on May 9th, when all will be revealed. In the meantime, information about management's thinking has been doled out sparingly, like wartime rations of sugar.
That doesn't mean news items about Citi have been scarce. Its first quarter loss of $5.1 billion made headlines. Embedded in the loss figure was $14 billion of pretax writedowns, principally for subprime mortgages and leveraged lending. That added to more than $20 billion of writedowns in 2007.
Since banking companies that run losses tend to need capital, Citi has also seemed to be constantly announcing that it has raised some. To the roughly $30 billion it raised last winter, it has recently added more than $10 billion in notes, preferred stock, and common stock. Meanwhile, what Citi hasn't done, to the amazement of many people, is take the obvious capital-conserving step of eliminating its dividend - a move that would be far less expensive than raising capital in the market.
The preservation of the dividend, though, has almost certainly helped the price of Citi (C, Fortune 500) stock, which at $24 is up from $18 a few weeks ago. But $24 is less than half Citi's price a year ago, and it is essential that CEO Pandit convince his audience at Investor Day that he's got a vision that sings.
Certainly Pandit and his crew will talk about the many management changes that have been made - including new executives brought in - and focus on Citi's cost-cutting attempts.
But the main emphasis is apt to be on Citi's business model, which Fortune described in "Can Anyone Run Citigroup?" after interviewing Pandit on April 11th. Pandit said then that Citi would concentrate on four main lines of business - credit cards, wealth management, the corporate bank, and investment banking - and sell off "non-core" operations. Among the recently departed is Citi's North American commercial lending and leasing business, which was sold to GE Capital (GE, Fortune 500).
Pandit also made it adamantly clear that Citi, a sprawling operation that does business in more than 100 countries, would be run as a matrixed organization. That's a management form that leaves many executives reporting to two executives - say, both the head of a geographical region and the head of credit cards. Yes, that can lead to confusion and acrimony, but Pandit says this way of running things is the only method that makes sense.
Tomorrow's Investor Day can be expected to add details to Pandit's plans, bring the world up-to-date on how Citi's risks are being contained and monitored, and generate lots of questions from analysts.
Still, hard talk about progress is likely to be in short supply. In April, talking to Fortune, the company's chief administrative officer, Don Callahan, in fact lamented the fact that Investor Day was coming up so quickly: "If I could have made it any date, I probably would have moved it back to December, where it's been in other years."
By then, said Callahan, management could talk about what had been accomplished, but right now, he said, Citi must talk mostly about "promises." And he said frankly, "I think people are tired of hearing promises."
Callahan's prediction then about the proceedings tomorrow: Pandit will say, "Here's what I've studied, here is what I've come to know, and here is where I think this organization can go in moving forward." That would indeed qualify as "promises," but for sure the audience will be listening very hard. To top of page
First Published: May 8, 2008: 5:38 PM EDT
CEO Vikram Pandit has promised to reveal on Friday his strategy for reviving the troubled bank. Will he deliver?
By Carol J. Loomis, senior editor at large
NEW YORK (Fortune) -- D-Day for Citigroup is Friday - and thank heavens it's finally arrived.
For months, analysts and reporters trying to understand what CEO Vikram Pandit and crew are strategizing to do with this monster financial institution have been told to wait for Investor Day on May 9th, when all will be revealed. In the meantime, information about management's thinking has been doled out sparingly, like wartime rations of sugar.
That doesn't mean news items about Citi have been scarce. Its first quarter loss of $5.1 billion made headlines. Embedded in the loss figure was $14 billion of pretax writedowns, principally for subprime mortgages and leveraged lending. That added to more than $20 billion of writedowns in 2007.
Since banking companies that run losses tend to need capital, Citi has also seemed to be constantly announcing that it has raised some. To the roughly $30 billion it raised last winter, it has recently added more than $10 billion in notes, preferred stock, and common stock. Meanwhile, what Citi hasn't done, to the amazement of many people, is take the obvious capital-conserving step of eliminating its dividend - a move that would be far less expensive than raising capital in the market.
The preservation of the dividend, though, has almost certainly helped the price of Citi (C, Fortune 500) stock, which at $24 is up from $18 a few weeks ago. But $24 is less than half Citi's price a year ago, and it is essential that CEO Pandit convince his audience at Investor Day that he's got a vision that sings.
Certainly Pandit and his crew will talk about the many management changes that have been made - including new executives brought in - and focus on Citi's cost-cutting attempts.
But the main emphasis is apt to be on Citi's business model, which Fortune described in "Can Anyone Run Citigroup?" after interviewing Pandit on April 11th. Pandit said then that Citi would concentrate on four main lines of business - credit cards, wealth management, the corporate bank, and investment banking - and sell off "non-core" operations. Among the recently departed is Citi's North American commercial lending and leasing business, which was sold to GE Capital (GE, Fortune 500).
Pandit also made it adamantly clear that Citi, a sprawling operation that does business in more than 100 countries, would be run as a matrixed organization. That's a management form that leaves many executives reporting to two executives - say, both the head of a geographical region and the head of credit cards. Yes, that can lead to confusion and acrimony, but Pandit says this way of running things is the only method that makes sense.
Tomorrow's Investor Day can be expected to add details to Pandit's plans, bring the world up-to-date on how Citi's risks are being contained and monitored, and generate lots of questions from analysts.
Still, hard talk about progress is likely to be in short supply. In April, talking to Fortune, the company's chief administrative officer, Don Callahan, in fact lamented the fact that Investor Day was coming up so quickly: "If I could have made it any date, I probably would have moved it back to December, where it's been in other years."
By then, said Callahan, management could talk about what had been accomplished, but right now, he said, Citi must talk mostly about "promises." And he said frankly, "I think people are tired of hearing promises."
Callahan's prediction then about the proceedings tomorrow: Pandit will say, "Here's what I've studied, here is what I've come to know, and here is where I think this organization can go in moving forward." That would indeed qualify as "promises," but for sure the audience will be listening very hard. To top of page
First Published: May 8, 2008: 5:38 PM EDT
