C - Citibank

[alertmeipp]

it's sad that all these big banks in US are trading at significant discount because of the unrest in EU.

[Rabbitisrich]

http://www.bloomberg.com/news/2012-05-31/woman-who-couldn-t-be-intimidated-by-citigroup-wins-31-million.html

 

In November 2010, Ross Leckie, a senior director of CitiMortgage’s retail bank mortgage unit, sent an e-mail ordering his staff to meet its goal of a maximum 5 percent defect rate on home loans. Quality-control employees had identified 10 loans with severe flaws from a pool of 138, Leckie said, for a rate of 7.25 percent.

“Drive this rate down by brute force,” he wrote. “We need three loans to be removed to get to 5.07 percent.”

 

Hunt needed the strength on March 22, 2011. That’s the day Polkinghorne, who was three levels above her in the chain of command, called her and a colleague aside and told them their asses were on the line if the defect rates didn’t fall.

 

If Citigroup has learned anything from Sherry Hunt, it’s not clear from the comments of CitiMortgage CEO Sanjiv Das, who’s based in New York. He says his division does terrific work.

“We are focused on making sure we manufacture loans the right way,” he says. “This is a complex industry. It’s a complex process. It takes time. We’re heading down a trajectory that I’m incredibly proud of. Is there something that is systemically wrong? Absolutely not. Absolutely not.”

[ERICOPOLY]

It looks like Citi is trading at the Sept 2011 low if you assign credit for the retained earnings.

 

It is now lower risk given that it's better capitalized and further progress has been made in reducing CitiHoldings.

 

Page 12 shows the shifting composition of the earnings contributions:

http://www.citigroup.com/citi/investor/data/p120516a.pdf

 

Over two years the "global consumer banking" unit has gone from 14% of earnings to 45% of earnings, while the "securities and banking" unit has gone from 61% of earnings to 27% of earnings.

[PlanMaestro]

Citi abandons plans for capital return <crossing fingers for Monday>

http://www.ft.com/intl/cms/s/0/63191b0c-b1ae-11e1-bbf9-00144feabdc0.html#axzz1wxD4WrWB

 

Citi could have opted to scale back its request but it has instead decided to abandon it altogether. Executives feared another failure would be highly embarrassing after a series of setbacks this year, including a majority investor vote against a pay plan for Vikram Pandit, chief executive, and other senior employees.

....

 

Citi said the fact that it had to submit next year’s plan in January had a bearing on its decision not to pursue a capital return this year. “We will make decisions regarding the 2013 capital plan later this year,” Citi said. “In the meantime, we will continue to build additional capital through earnings and the ongoing reduction of non-core assets.”

 

Citi also announced on Friday that it would redeem $5bn of trust preferred securities, a capital action approved by the Fed. Recent regulatory reform reduces the usefulness of the securities, which officials believe are not sufficient to absorb losses.

...

 

Mr Pandit had said in April that one option was “waiting until the 2013 submission” to ensure his plan was approved. He maintained that Citi was “one of the best capitalised banks in the world”.

 

 

[PlanMaestro]

Statement: http://www.citigroup.com/citi/news/2012/120608a.htm

(Check pages 17 and 20 of Eric's link)

 

Citi is one of the best capitalized banks in the world. At of the end of the first quarter of 2012, our Tier 1 Common ratio was 12.5% under Basel I and an estimated 7.2% under Basel III, Citi is also highly liquid, with close to $500 billion in cash and available-for-sale securities, representing approximately 26% of the balance sheet.

 

[PlanMaestro]

http://blogs.barrons.com/stockstowatchtoday/2012/07/16/citi-consumer-banking-lower-expenses-boost-earnings/?mod=BOL_hpp_blog_stw

 

As with other banks, it was hard to get to Citigroup © “core” second quarter earnings. Excluding the impact of a debt valuation adjustment (basically Citi’s profit got a boost from the lower value of its debt) and other one-time items, Citi earned 95 cents, 6 cents ahead of expectations. There was, however, some dispute about the actual “core result, with at least one analyst calling it a miss.

 

 

“Total Citi Holdings assets declined $74 billion, or 28%, from the second quarter 2011, to $191 billion. Citi Holdings assets at the end of the second quarter 2012 represented approximately 10% of total Citigroup assets,”

 

“Citigroup’s capital levels and book value continued to increase versus the prior year period. At the end of the second quarter 2012, book value per share was $62.61 and tangible book value per share was $51.81, 4% and 6% increases, respectively, versus the prior year period end. Citigroup’s Tier 1 Capital Ratio was 14.4%, its Basel I Tier 1 Common Ratio was 12.7%, and its estimated Basel III Tier 1 Common Ratio was 7.9%.”

[PlanMaestro]

Good WSJ article:

http://online.wsj.com/article/SB10001424052702303612804577531233183285476.html

 

 

Another issue dragging on Citi's valuation: the impact certain holdings have on its capital. In its results, Citi gave some new figures related to its Tier 1 common ratio as calculated under new Basel III rules and taking into account new U.S. regulatory guidance. At 7.9%, this was the same as J.P. Morgan and slightly above Wells Fargo's WFC +0.12% 7.8%.

 

There is a big difference, though, between Citi's Tier 1 common capital as calculated under the Basel III rules, at $99 billion, and the $124 billion under existing Basel I rules. By contrast, J.P. Morgan's Tier 1 common capital is virtually unchanged under the two approaches, and Wells's actually increases slightly under the newer method.

 

This means Citi has big assets that do nothing to bolster its capital base. That, in turn, acts as a drag on its ability to increase capital to meet new requirements and ultimately to be in a position to increase its dividend and buy back stock. That is a particular concern since the Federal Reserve earlier this year rejected Citi's capital-return plan.

 

Assets that don't count toward the new capital measure include minority holdings in other financial firms, such as a brokerage venture with Morgan Stanley, MS -0.35% and its $51 billion in deferred-tax assets from losses racked up during the crisis.

 

 

[Kraven]

Vikram steps down.  Havens joins him.  Mike Corbat is the new CEO.

 

http://finance.yahoo.com/news/vikram-pandit-steps-down-ceo-120900907.html

[BargainValueHunter]

Can anyone else think of something like this happening anywhere else the day after a great earnings report?

 

As far as I can tell no one outside of the boardroom saw this coming.

 

What is going on over there??

[dcollon]

Mr. O'Neill has been on the road the last few months meeting with shareholders.  I'm guessing he heard certain comments and therefore wanted to go one direction while Mr. Pandit wanted to go another.  Hopefully we will find out at some point. 

 

 

[Yours Truly]

Actually this should be good news hopefully and the market likes it..

 

In Sheila Blair's book, she cites Vikram as one of the dumbest CEO's in the banking industry and only cares about the pay..

[Yours Truly]

Blair said at one point when Bernake and Geitner brought all the CEOs of banks into a room to tell them they are taking a bailout, Pandit was the first to speak and said "how does this affect my pay/bonus?"

 

She said she was floored by the comment. The financial system was about to

collapse and Pandit was more concerned about his take home pay..

 

Good riddance

[dcollon]

Some updated comments from Bair

 

http://www.bloomberg.com/news/2012-10-16/pandit-departure-is-very-positive-for-citigroup-bair-says.html

 

[nkp007]

I know there's a lot of Pandit hate, but I don't think it's all warranted.

 

He did a solid job with a terrible situation. I think he setup Citigroup for a long-runway of growth that will probably reflect well on his successor (not on him).

 

Obviously it sounds like he cares too much about pay. But let's pay attention to his results too!

[BargainValueHunter]

Mr. O'Neill has been on the road the last few months meeting with shareholders.  I'm guessing he heard certain comments and therefore wanted to go one direction while Mr. Pandit wanted to go another.  Hopefully we will find out at some point. 

 

 

 

I wonder if that fact that Citi turned its back on mortgages while WFC scooped up mortgage related revenue has anything to do with Pandit's ouster.

[dcollon]

Another one from Bloomberg:

 

http://www.bloomberg.com/news/2012-10-16/citigroup-board-said-to-oust-vikram-pandit-over-poor-execution.html

 

[Guest rimm_never_sleeps]

Blair said at one point when Bernake and Geitner brought all the CEOs of banks into a room to tell them they are taking a bailout, Pandit was the first to speak and said "how does this affect my pay/bonus?"

 

She said she was floored by the comment. The financial system was about to

collapse and Pandit was more concerned about his take home pay..

 

Good riddance

 

can you source this? can't find it on the Internet.

http://dealbook.nytimes.com/2010/09/24/for-pandit-1-this-year-a-big-bump-in-2011/

[mysticdrew]

Blair said at one point when Bernake and Geitner brought all the CEOs of banks into a room to tell them they are taking a bailout, Pandit was the first to speak and said "how does this affect my pay/bonus?"

 

She said she was floored by the comment. The financial system was about to

collapse and Pandit was more concerned about his take home pay..

 

Good riddance

 

can you source this? can't find it on the Internet?

http://dealbook.nytimes.com/2010/09/24/for-pandit-1-this-year-a-big-bump-in-2011/

 

Wrong executive... it was John Thain who asked about compensation restrictions not Pandit.

http://finance.fortune.cnn.com/2012/09/20/bair-bull-horns/

 

"Then the questions began.

Thain, whose bank was desperate for capital, was worried about restrictions on executive compensation. I couldn't believe it. Where were the guy's priorities? Lewis said that BofA would participate and that he didn't think the group should be discussing compensation. I watched Vikram Pandit scribbling numbers on the back of an envelope. "This is cheap capital," he announced. I wondered what kind of calculations he needed to make to figure that out. "

[PlanMaestro]

Most of what I am reading is really unfair to Pandit. I would agree there was some complacency last year over costs and Smith Barney but Citi was on the upswing. And to focus on the stock performance when the Citigroup he received was dead in the water?

 

He is not the most charismatic of CEOs but he simplified and capitalized the bank … and everything indicates that the next CEO will be a very lucky man.

[Parsad]

Blair said at one point when Bernake and Geitner brought all the CEOs of banks into a room to tell them they are taking a bailout, Pandit was the first to speak and said "how does this affect my pay/bonus?"

 

She said she was floored by the comment. The financial system was about to

collapse and Pandit was more concerned about his take home pay..

 

Good riddance

 

can you source this? can't find it on the Internet?

http://dealbook.nytimes.com/2010/09/24/for-pandit-1-this-year-a-big-bump-in-2011/

 

Wrong executive... it was John Thain who asked about compensation restrictions not Pandit.

http://finance.fortune.cnn.com/2012/09/20/bair-bull-horns/

 

"Then the questions began.

Thain, whose bank was desperate for capital, was worried about restrictions on executive compensation. I couldn't believe it. Where were the guy's priorities? Lewis said that BofA would participate and that he didn't think the group should be discussing compensation. I watched Vikram Pandit scribbling numbers on the back of an envelope. "This is cheap capital," he announced. I wondered what kind of calculations he needed to make to figure that out. "

 

They had that scene in "Too Big To Fail" too.  Pretty funny and shocking!  Cheers!

[HJ]

One can always second guess the actions that Vikram, with the blessing of the board, took.  Look at the good bank bad bank structure, look at the decision to sell Smith Barney, look at the decision to become an emerging market bank in the wake of the crisis, were they all the right action to take in hindsight? 

 

They subsequently took their Credit Card operations out of the bad bank, and decided that wait, that is a good business to be in after all.  Are there other businesses in Citi holding that they might have made the decision too quickly on?  Mortgage banking perhaps, now that there is this refi wave?  Smith Barney turned out to be sold at a bad price.  In light of the possible slow down in China, even ramping up emerging market during the last couple of years can be questioned.  Do they really know how to be a good emerging market bank in all those jurisdictions, some of which only allows them as a minority joint venture partner?  Mexican operations aside, are they taking US deposits to fund their emerging market expansion?  Is that a long term sustainable global banking model?

 

All of these are debatable points.  In the name of creating share holder value, the market may ultimately do what the government failed to do during the crisis, which is to break up Citi, unless the Fed decides that it's not going to happen in the name of systemic risk.  What a mess!

 

 

[Guest rimm_never_sleeps]

Blair said at one point when Bernake and Geitner brought all the CEOs of banks into a room to tell them they are taking a bailout, Pandit was the first to speak and said "how does this affect my pay/bonus?"

 

She said she was floored by the comment. The financial system was about to

collapse and Pandit was more concerned about his take home pay..

 

Good riddance

 

can you source this? can't find it on the Internet?

http://dealbook.nytimes.com/2010/09/24/for-pandit-1-this-year-a-big-bump-in-2011/

 

Wrong executive... it was John Thain who asked about compensation restrictions not Pandit.

http://finance.fortune.cnn.com/2012/09/20/bair-bull-horns/

 

"Then the questions began.

Thain, whose bank was desperate for capital, was worried about restrictions on executive compensation. I couldn't believe it. Where were the guy's priorities? Lewis said that BofA would participate and that he didn't think the group should be discussing compensation. I watched Vikram Pandit scribbling numbers on the back of an envelope. "This is cheap capital," he announced. I wondered what kind of calculations he needed to make to figure that out. "

 

that's kind of an important distinction. thanks. ;) and it wasn't exactly his bonus he is was worried about. it was probably more about retaining good people.

[Palantir]

The next CEO is going to benefit from Pandit's work, just like Pandit got screwed over by the previous regime. People look at the 90% drop in capitalization but dont see the fact that the problems were present long before VP.

[fareastwarriors]

The next CEO is going to benefit from Pandit's work, just like Pandit got screwed over by the previous regime. People look at the 90% drop in capitalization but dont see the fact that the problems were present long before VP.

 

+1

 

If the new CEO continues what was going well at C, then I will be an even happier shareholder.

[PlanMaestro]

Frustration at Citi preceded Pandit’s exit

http://www.ft.com/intl/cms/s/0/e99763dc-1874-11e2-80af-00144feabdc0.html#axzz29PU1iEvs

 

Citigroup’s board, which oversaw the dramatic departure of chief executive Vikram Pandit on Tuesday, is a very different animal to most US bank rivals.

 

JPMorgan Chase’s board is stacked with people who have known chief executive Jamie Dimon for years and whose senior director, Lee Raymond, chief executive of Exxon Mobil, joined in 1987.

 

Bank of America has a “Boston mafia” loyal to chief executive Brian Moynihan from his days at FleetBoston, which BofA acquired in 2004.

 

Citi has a much more independent board. Crucially, unlike JPMorgan, Goldman Sachs, Morgan Stanley and Wells Fargo, it does not give the title of chairman to its chief executive. BofA has a separate chairman.

Four members, without ties to Mr Pandit, were appointed in 2009 – Mike O’Neill, now Citi chairman and former chief executive of Bank of Hawaii; Anthony Santomero, former president of the Federal Reserve Bank of Philadelphia; William Thompson, former head of Pimco; and Jerry Grundhofer, former chief executive of US Bancorp.

 

On Monday afternoon Mr O’Neill and Mr Pandit had a conversation prior to the company’s regularly scheduled board meeting. At the end of it Mr Pandit resigned.

 

Both men say it was Mr Pandit’s decision and that might narrowly be true. But people close to the situation say it came after years of pent-up frustration among Citi directors about the direction of the company.

 

Board members were upset at the pace of Citi’s recovery from its near-death experience in 2008. They were also aghast at a series of mis-steps this year from the sale to Morgan Stanley of the Smith Barney brokerage in September at much less than Citi said it was worth, to the failure to gain approval from the Federal Reserve in March to return capital to investors.