Wall Street analysts had barely finished digesting the third-quarter results that Citigroup had released on Monday when the news broke of a shake-up at the top of the bank. Here is what the analysts had to say about the departures of Vikram Pandit, the bank's chief executive, and John Havens, the president and chief operating officer and the naming of Michael Corbat to be C.E.O.:
Chris Kotowski, Oppenheimer:
It is obviously all very unusual and surprising, and in our minds, could be a positive or a negative. We are leaning toward positive given that, in the event there was something negative brewing under the surface, the company would have had to disclose this.
â– The positive scenario would be that the board decided that Pandit's relationship with regulators was too strained and that they would increase the chance of substantial capital returns in next year's CCAR [Comprehensive capital analysis and review; the Federal Reserve's "stess test "] process with his departure.
â– The negative scenario would be that there is incremental negative news to come out, whether about the Libor probe or something else. If it was the Libor probe, however, it seems to us that if that were the case, they would have had to file an 8-K or at least mention it in the press release.
â– Alternatively it could be a purely personal issue with Mr. Pandit and have no other implications for Citi though again we think that is less likely, since he could have addressed it on yesterday's earnings call.
Jason Goldberg, Barclays:
Michael Corbat isn't well known to the Street and his future strategic direction for the company is uncertain. Still, change isn't always bad and we continue to believe yesterday's results reflected improvement in several key areas, including higher revenues, increased loans and deposits, controlled expenses, an expanding NIM [net interest margin], improved core asset quality, higher capital ratios and a continued reduction in Citi Holdings.
Mike Mayo, CLSA:
The transition of the C.E.O. reflects a microcosm of the poor corporate governance under Vikram Pandit; Citigroup's C.E.O. and C.O.O. will step down in a manner that reflects poor corporate governance, in our opinion. Both individuals will step down at the same time without any transition and do so literally one day after Citi reported earnings and investors relied on statements given by the C.E.O.
Moreover, where is the conference call for the new C.E.O., Michael Corbat? A new C.E.O. gives the possibility for better governance but, based on this start, we'll hold back our expectations, especially since it has been 182 days since the negative say-on-pay vote and Citi has not taken action.
Andrew Marquardt, Evercore Partners:
Mgmt change likely related to a number of missteps, in our view, including on capital deployment (recall '12 CCAR where Citi was not approved for deployment), incentive compensation issues (recall non-binding vote by shareholders on Pandit's pay), and still mixed results and outlook (recall we've been skeptical of Pandit's long-term goals and nearer term have been below consensus).
David Konrad, Keefe, Bruyette & Woods:
\What We Don't Know: We were certainly surprised about this announcement coming right off the heels of the earnings announcement. Although we don't know the factors behind the decision for Mr. Pandit to step down, we do not believe there is a “smoking gun†or pending Libor issue; if so we believe that this would have been required to be disclosed during the prior day's earnings release. However, issues regarding the 2012 CCAR failure and the desire to continue to improve the company's operations and relationship with its regulators may be factors.
What We Know: We know that Citi's fundamentals have materially improved through better capital, reduction of Citi Holdings' assets and improved PTPP ROA [pre-tax pre-provision return on assets -- a measure of earnings] at Citicorp. Moreover, we believe Citi's COB [chairman of the board], Michael O'Neill, is a strong leader and has an excellent reputation in the industry. At both BAC [Bank of America] and BOH [Bank of Hawaii], Mr. O'Neill was a leader in implementing strategies to sell off underperforming business, redeploy capital, and maximize shareholder value.
