Investors Hope for Clarity, Quickly

As Michael L. Corbat takes up the reins at Citigroup, analysts and investors have a message for him: Shrink your bank fast, and be a lot more transparent as you do so.

Mr. Corbat takes over from Vikram S. Pandit as chief executive of Citigroup four difficult years after the financial crisis. In that period, Mr. Pandit steadied the banking behemoth and tried to focus Citi on the businesses he felt it could do best in. But, increasingly, many investors felt Citi's overhaul wasn't bold or quick enough.

“Citigroup has acted as if it's too big to care,” said Mike Mayo, an analyst with CLSA, a brokerage firm. “That means that they are too big to be sensitive to shareholder concerns.”

Dissatisfaction with Citigroup's progress motivated shareholders to vote against a $15 million pay package for Mr. Pandit in April. That vote came soon after the Federal Reserve turned down Citigroup's plans to pay out capital to shareholders, a stinging indication that reg ulators still weren't comfortable with the bank.

Since those expressions of discontent, Citigroup's shares are sharply higher, though they are still down 89 percent since Mr. Pandit took over in December 2007. The stock trades at a pitiful valuation, reflecting two dominant views in the markets: Citigroup's transformation has a long way to go, and its financial statements can be opaque.

Though relatively unknown to shareholders, Mr. Corbat starts with a reputation as an assiduous executive with a deep knowledge of Citigroup, where he has worked for nearly 30 years. He even got good reviews from people who have been skeptical about Citigroup and its management. Sheila C. Bair, the former head of the Federal Deposit Insurance Corporation, who clashed with Mr. Pandit, knew Mr. Corbat from interactions during the financial crisis.

“He was involved in several meetings with us,” said Ms. Bair, adding, “He was prepared and he knew his stuff.”

Now, so me analysts believe Mr. Corbat could open the door to more radical moves at Citigroup.

“I think this is a real, long-term positive for Citi,” said Gerard Cassidy, a banking analyst with RBC Capital Markets.

Still, Mr. Corbat may have to impress quickly, given the pent-up frustrations among shareholders. His first public conference call as chief executive on Tuesday was not encouraging on that front. He seemed to disappoint analysts who wanted to hear Mr. Corbat express a greater desire to change things. Instead, he said, “Today's changes do not alter the strategic direction of Citi, which we believe is a good one.”

In a memo to employees on Tuesday, Mr. Corbat sounded more emphatic. He wrote, “We must deliver sustained profitability, improved operating efficiency and shareholder returns.”

Part of Mr. Corbat's job will be getting more out of Citigroup's best-performing operations. Many of its international lending businesses do consistently well, and he may look for ways to make sure investors give greater recognition to this strength.

One idea may be to sell minority stakes in those operations in foreign stock markets, something that Spanish bank Santander has done recently with its Mexican unit. If those shares perform well, it would highlight the value in those businesses and perhaps lift Citigroup's stock. Asked about this idea Tuesday, Mr. Corbat said, “I'll look at those things and see what the numbers say.”

The burning question, though, is whether he has the resolve to get out of businesses that the bank doesn't excel in, even if the near-term costs are high. Mr. Cassidy, the analyst, said Mr. Corbat should sell any business line that could not achieve the sort of returns that shareholders expected. Citigroup's chairman, Michael E. O'Neill, aggressively reduced the size of Bank of Hawaii when he led it.

“He shrunk that bank by 30 percent; that's what Citi has to do,” Mr. Cassid y said.

In particular, some investors would like Citigroup to be quicker about selling assets in Citi Holdings, the bad bank that Citigroup set up for its unwanted and loss-making assets. Mr. Corbat ran Citi Holdings until the end of last year. Faster sales might mean Citigroup would not get the best price possible for the $171 billion in assets in Citi Holdings. That could lead to higher losses when sales took place.

But selling assets more quickly could free up the capital the bank holds there. In turn, that could lead to a big improvement in Citigroup's regulatory capital ratios, which investors watch very closely. Banks that can show they have little trouble meeting such ratios often get better valuations on their shares.

Citigroup's investment bank is the other obvious target for shrinkage. Right now, it is enormous. The “securities and banking” division at Citigroup has $903 billion of assets. That's only slightly less than Goldman Sachs's assets. And Citi's investment bank's revenue has been uneven since the financial crisis.

The unit is also seen as a black box, something Mr. Corbat will have to tackle if he wants to regain investors' confidence, analysts say. Citigroup's disclosures aren't as detailed as those of some other banks. For instance, each quarter, Goldman Sachs releases a critical number that shows how much profit it makes on its capital.

But Citigroup doesn't do that for its investment bank; it simply doesn't tell outsiders how much capital it has deployed in that unit. As a result, it could be making unproductive investments in Wall Street operations without shareholders knowing. This could be true in other business lines, as well.

The quandary for Mr. Corbat may be that, if he increases disclosure, investors may balk at any alarming numbers and dump the stock. Even so, he may have to risk that outcome.

“They have to open up the kimono,” Mr. Cassidy said.

Perhaps Mr. Corbat will become Citigroup's quiet revolutionary, a leader who is prepared to make bold moves to win over, and win back, shareholders. He did offer up one button-down remark Tuesday that could provide a tidbit of hope to shareholders who are relying on him to redouble Citigroup's remodeling. “I wouldn't minimize the impact you can have on a place,” he said.

Despite Its Problems, Dodd-Frank Is Better Than the Alternatives

Repeal Dodd-Frank? It sounds so simple. But repealing the Dodd-Frank Act won't end “too big to fail” banks, and it may even make things worse.

Mitt Romney raised the issue at the first presidential debate, contending that Dodd-Frank should be repealed and replaced because “it designates a number of banks as too big to fail, and they're effectively guaranteed by the federal government. This is the biggest kiss that's been given to - to New York banks I've ever seen.”

It's a seductive idea. Dodd-Frank contains provisions that go much further than regulating banks in order to prevent another financial crisis.

In Section 1,502, to take one example, is a provision requiring public companies to disclose whether they use conflict minerals. What this has to do with the financial crisis is beyond me. So, some parts of Dodd-Frank may already need renovation or even repeal.

But the core of the law dealing with the big banks is another story. Simply rep ealing Dodd-Frank wholesale will turn back the financial clock to 2006 for these banks. That doesn't seem very smart given what happened, something that Mr. Romney recognizes when he talks of replacing the act rather than repealing it.

The problem is that possible replacements are unlikely to work or would be politically feasible.

The fundamental issue is that a few banks have grown to be enormous over the last two decades. According to SNL Financial, four banks each had more than a trillion dollars in assets at the beginning of the year. JPMorgan Chase was the largest with $2.3 trillion in assets, while Bank of America had about $2.2 trillion in assets and Citigroup, $1.9 trillion. Goldman Sachs is fourth with about $950 billion in assets.

That's a lot of money, but not only are the banks big, their share of the market has grown. In the 1980s, the 10 largest banks had less than 30 percent of bank depositary assets. By 2012, this amount had almost doubled t o 54 percent.

And size has paid off for these select banking giants. They enjoy a subsidy of reduced borrowing costs because investors believe the government will bail them out if things go awry. The size of the subsidy is debated heatedly by economists, but one recent study estimates that before the financial crisis, the banking behemoths obtained a subsidy that made their financing cheaper by 45 basis points, 0.45 percent. And at least one study has found that banks overpaid in the years leading up to the financial crisis to acquire competitors in order to get bigger and gain this advantage.

So, Dodd-Frank didn't create “too big to fail” institutions. The banks themselves did because it made them money.

The financial reform law takes two tacks in dealing with these institutions. First, Dodd-Frank tries to figure out who they are and charge them for being too big. This is done by raising their regulatory costs through more oversight and supervision.

It means more governmental red tape for these banks, but also ostensibly fewer problems because of it. Regardless, one purpose of this increased regulation is to impose a regulatory tax on big banks to push them to be smaller.

Second, Dodd-Frank addresses the “Lehman” problem - that bankruptcy may not work for a huge financial failure. Instead, a new regime is created to put big institutions into what is hoped to be an orderly receivership that avoids a general financial panic, something that unfortunately happened when Lehman Brothers filed for bankruptcy in September 2008.

Repealing Dodd-Frank will not make these banks go poof and disappear. Instead the banks, which have only grown larger and more concentrated since the financial crisis, will continue to enjoy a subsidy. After all, when push comes to shove, no president will simply let a $2 trillion institution go down. It would destroy the economy.

The real question then is whether there are any alternatives to Dodd-Frank other than repealing it.

The two options that are most often discussed are to break up the banks or impose a capital charge.

A breakup is the favorite choice of many and has even been mooted by Sanford I. Weill in July, a number of years after he left Citigroup, the behemoth he created. Daniel K. Tarullo, a Federal Reserve governor, recently proposed a simple suggestion: capping the size of a bank's balance sheet. But in a large financial system, you need large banks as lenders.

Even if you can function without large banks, the political feasibility of a bank breakup in a Democratic administration, let alone Republican one, is unlikely.

Luigi Zingales writes in his provocative book “A Capitalism for the People” (Basic Books) that the Glass-Steagall Act, the Depression-era law that separated investment banking from commercial banking, was good because it led to competition among banks rather than allowing them to bond tog ether to fight for their bigness.

In other words, the big banks would now resist such a solution to the death. (Mr. Zingales, by the way, is a member of the University of Chicago faculty and has been a co-author with Glenn Hubbard, a central Romney economic adviser.) Like it or not, we are probably stuck with large banks. And there will always be smaller institutions that are simply too interconnected to be allowed to fail.

This leaves the second option and probably the one that Mr. Romney is likely to favor: higher capital requirements or leverage limitations for the biggest banks. This may work but essentially does the same thing that Dodd-Frank claims to do - make it more costly to be a “too big to fail” bank.

This solution has the virtue of being easier to administer and certainly requires less regulatory power. But the solution would leave a future administration gasping if one of these banks went down.

And the capital charges would have to b e agreed on internationally in order to keep American banks from being outgunned by foreign competitors. This is what the Basel III accords are supposed to do, but raising the capital or leverage limits would require a whole new international bargain.

This is unlikely to happen anytime soon because the European banks lack the wherewithal right now to raise their capital even if they wanted to. Even more problematic is that raising capital and leverage requirements may reduce lending more than the current regulatory provisions do because banks would be forced to keep more money on their books rather than lend it.

The bottom line is that there are real problems with Dodd-Frank. It contains tons of extraneous stuff, and even the provisions dealing with the large banks are sometimes too convoluted and intricate. The mess that the regulatory agencies are in as they try to sort out the Volcker Rule is a good example.

But while it is nice to talk of repealing or w atering down Dodd-Frank, the alternatives may not be much better as long as we have big banks. And those don't seem to be going away any time soon.

Pioneering High-Speed Trading Executives Shut Firm

A high-frequency trading firm founded less than two years ago by former Citigroup executives is ending operations as the industry confronts a slowdown.

The firm, Eladian Partners, was started in early 2011 by two pioneers in high-speed trading, Steve Swanson and Peter Kent. It grew to more than 50 employees and had offices in New York, London and South Carolina that were focused on buying and selling stocks and exchange-traded funds.

A spokeswoman for the company confirmed the the firm had shut down “due to market conditions.”

High-speed trading firms have come to dominate trading in American stocks over the last decade with sophisticated computer programs that allow them to hop in and out of positions, taking advantage of small changes in prices. They have recently faced scrutiny from regulators and politicians, who have worried that the traders have an advantage over traditional investors.

There are growing signs that the business of high-spee d trading, or electronic market-making as it is sometimes called, is shrinking because of the steadily declining volume on the world's stock exchanges over the last four years. At the same time, the demands of keeping up with the quickly evolving technology have eaten away at the bottom line.

The brokerage Rosenblatt Securities estimated that the profits these firms earn this year from trading American stocks will be down 35 percent from last year and 74 percent from 2009, at the industry's peak.

Doug Cifu, the president of another high speed firm, Virtu Financial, said Tuesday that “Eladian's failure demonstrates how difficult it is for market making firms to prosper in current market conditions.”

Neither of Eladian's founders was available to comment on the decision to close the firm.

Mr. Swanson and Mr. Kent both helped build one of the first major players in the high speed industry, Automated Trading Desk. It was sold to Citi in 2007 for $680 million and became a central part of that bank's trading operations.

Mr. Swanson and Mr. Kent initially stayed on at Citi, but left in 2010, not long before founding Eladian.

On its Web site, the company had stated that: “Trading in today's market requires exceptional talent and experience coupling superior technology with a unique and innovative approach to trading. Eladian Partners is a global multi-asset class trading firm built on cutting edge technology combined with sophisticated quantitative trading strategies.”

By the end of Tuesday, the company Web site had been taken down.

N.Y.U. Law Plans Overhaul of Students\' Third Year

There is an old saying that in the first year of law school they scare you to death; in the second year, they work you to death; and in the third year, they bore you to death.

The usefulness of the third and final year of study ranks high among the growing chorus of complaints - which includes soaring tuition and a glutted job market - about law schools.

New York University School of Law is now trying to address those questions about the utility of the third year. On Wednesday, the school is expected to announce an overhaul of its curriculum, with an emphasis on changes in the final, third year of school.

The move comes as law schools are being criticized for failing to keep up with transformations in the legal profession, and their graduates face dimming employment prospects and mounting student loans.

N.Y.U. Law's curriculum changes are built around several themes, including a focus on foreign study and specialized concentrations. Some students c ould spend their final semester studying in Shanghai or Buenos Aires. Others might work at the Environmental Protection Agency in Washington, or the Federal Trade Commission. Another group, perhaps, will complete a rigorous one-year concentration in patent law, or focused course work in tax.

“There are perennial complaints about the third year of law school being a waste of time,” said Brian Z. Tamanaha, a law professor at Washington University and the author of the recently published book “Failing Law Schools” (University of Chicago Press). “It is important that an elite law school like N.Y.U. is making these changes because the top schools set the model for the rest of legal academia.”

N.Y.U. Law is the latest law school to alter its academic program significantly. Stanford Law School recently completed comprehensive changes to its third-year curriculum, with a focus on allowing students to pursue joint degrees. Washington and Lee University School of Law scrapped its traditional third-year curriculum in 2009, replacing it with a mix of clinics and outside internships.

“There is a growing disconnect between what law schools are offering and what the marketplace is demanding in the 21st century,” said Evan R. Chesler, the presiding partner of the law firm Cravath, Swaine & Moore and a trustee of N.Y.U. Law. “The changes we're rolling out seek to address that.”

There has been much debate in the legal academy over the necessity of a third year. Many students take advantage of clinical course work, but the traditional third year of study is largely filled by elective courses. While classes like “Nietzsche and the Law” and “Voting, Game Theory and the Law” might be intellectually broadening, law schools and their students are beginning to question whether, at $51,150 a year, a hodgepodge of electives provides sufficient value.

“One of the well-known facts about law school is it never took three years to do what we are doing; it took maybe two years at most, maybe a year-and-a-half,” Larry Kramer, the former dean of Stanford Law School, said in a 2010 speech.

Yet no one expects law schools to become two-year programs any time soon. For one thing, law schools are huge profit centers for universities, which are reluctant to give up precious tuition dollars. What is more, American Bar Association rules require three years of full-time study to obtain a law degree. Several law schools, including Northwestern University School of Law, offer two-year programs, but they cram three years of course work - and tuition - into two.

The overhaul at N.Y.U. Law is built around several themes. While the school has dabbled in foreign study, it is now redoubling its focus on international and cross-border legal practice. N.Y.U. Law is preparing to send as many as 75 students to partner law schools in Buenos Aires, Shanghai and Paris, where the students will study the legal systems and the languages of those regions. With the ever-increasing influence of government and the regulatory state in private legal matters, N.Y.U. Law will also offer students a full semester of study, combined with an internship, in Washington.

Another key initiative gives students the chance to build a specialty. Called “professional pathways,” the program will offer eight focused areas of instruction, including criminal law and academia.

None of these programs will be mandatory, as students can still choose a conventional course load. But Richard L. Revesz, the dean of N.Y.U. Law, said that he hoped the students would take advantage of the new offerings.

“The third year of law school has never had a clear mission, and these steps now give us that,” Mr. Revesz said. “Students will not maximize their final year here if they just take a random set of courses.”

N.Y.U. Law's curriculum changes illustrate the continuing evoluti on of the legal education model. Until the late 19th century, most lawyers - like Abraham Lincoln - were trained through the old-fashioned apprenticeship method. But for the last hundred years, law school classrooms have been dominated by the case method of instruction, which trains law students by having them read court cases and questioning them via the Socratic method.

Now, in an era of globalization and specialization, law schools are acknowledging the inadequacy of the traditional approach.

“Training lawyers to think like lawyers was once law schools' entire mission,” said Mr. Chesler, the N.Y.U trustee and Cravath presiding partner. “That doesn't work anymore.”

The reworking of N.Y.U.'s curriculum is the result of recommendations made by a strategy committee of alumni formed in May 2011 by Mr. Revesz. Mr. Chesler was chairman of the 12-person committee, which included Randal S. Milch, the general counsel of Verizon Communications; Eric M. Roth , a partner at Wachtell, Lipton, Rosen & Katz; and Sara E. Moss, the top lawyer at Estée Lauder.

“The group that came up with these new measures is comprised of leading lawyers who are creating the market to hire our students,” Mr. Revesz said. “Perhaps more than any of the substantive changes, I'm most proud of who has recommended them.”

Behind the curriculum revamp is a recognition that the job market has become markedly worse since the financial crisis, even for students at well-regarded law schools like N.Y.U. The country's largest law firms are hiring 40 percent fewer lawyers than they were five years ago, according to a new study from the National Association for Law Placement. Reflecting the shrinking job market, the number of people taking the law school admission test has fallen by nearly 25 percent in the last two years.

“The social compact that you attend an elite law school and get a high-paying job has started to erode,” said Willi am D. Henderson, a law professor at Indiana University who studies the legal industry. “Law schools must change, and while it's great to hear about this news about N.Y.U., they have lots of resources and money. The greater sense of urgency lies with the lower-tier schools.”

Live Blog: Citigroup\'s Conference Call

Citigroup's new chief executive, Michael L. Corbat, and the board's chairman, Michael E. O'Neill, are set to answer questions at 4:30.

Pandit, a Low Paid C.E.O. Among Wall Street Peers

Vikram S. Pandit worked as Citigroup‘s chief executive for just under five years. But during that time, he earned a good deal less than other Wall Street chieftains made.

There are a number of ways to look at Mr. Pandit's compensation from 2007 through 2011, according to an analysis that the research firm Equilar performed for DealBook.

The most generous view is by looking at Mr. Pandit's total direct compensation, which includes salary, bonus payouts, other benefits and the grant date value of equity awards. That comes out to $56.4 million. However, that includes the value of equity awards that ultimately didn't vest.

Then there's his total take-home pay, which includes salary, bonuses, benefits and the value of exercised stock options and vested stock. That amounts to $13.5 million. If one accounts for the current stock price for shares that vested during Mr. Pandit's tenure, instead of the original price on the days the stock was granted, that would come out to $11.9 million.

That's fairly low, compared with some of Mr. Pandit's Wall Street peers. Jamie Dimon of JPMorgan Chase, for instance, received $23 million last year through a combination of salary and cash and stock incentives, according to the firm's most recent proxy statement.

Some of that stems from Mr. Pandit's receiving only $1 in base salary during 2009 and 2010, when he pledged to earn that token amount until he brought the firm back to profitability. (He still received stock-based payouts that brought his total take-home pay to $1.3 million in each of those years, according to Equilar.)

In any case, according to Equilar, Mr. Pandit hasn't sold any shares during his time at Citi, at least through 2011.

Still, Citi's shareholders have not been that impressed. When Citi's board let shareholders provide their input on giving Mr. Pandit a $15 million payout this spring, they voted resoundingly against the proposed package. It was the f irst stinging rebuke against a major Wall Street chief's compensation.

Mr. Pandit's biggest payout from Citi was the $165 million that he received when the bank bought Old Lane Partners, the hedge fund he co-founded after leaving Morgan Stanley.

Meanwhile, it appears as if the now-former chief executive will not receive a golden parachute. Mr. Pandit didn't have an employment agreement that guarantees such a payout in case of termination, according to an analysis by Disclosure Matters.

Other, more limited agreements also lack the kinds of provisions that are often used to guarantee payouts for exiting executives. A “key employee” profit-sharing agreement with Mr. Pandit filed in May 2011 says he generally “shall not be entitled to any payments pursuant to the plan” if his employment terminates before May 2013, except in the case of death or disability. Similarly, option and stock grants made last year suggested that Mr. Pandit would forfeit most of those awards on departure.

A Trip Down the Short, Sad Path of Old Lane

Perhaps the best trade Vikram Pandit made as a hedge fund manager was selling his firm to Citigroup.

His former hedge fund, Old Lane, was just a year old in 2007, and its performance was lackluster. But the purchase went ahead all the same, costing Citigroup $800 million and personally netting Mr. Pandit $165 million. At the time, the purchase was more about buying Mr. Pandit, a former star Morgan Stanley executive, than it was about adding the roughly $4.5 billion in assets his firm held to Citi's fold.

“This transaction is an investment as much as it is an acquisition,” Charles Prince, then Citigroup's chief executive, said at the time, referring to Mr. Pandit and his team's experience.

The decision, however, turned out to be ill-fated. Mr. Pandit was named Citi chief in late 2007, but the hedge fund continued to underperform. After making a paltry 3 percent return in 2007, Old Lane began to lose money in 2008. Investors, in need of cash, asked for billions back from the fund. Unable to keep the firm afloat, the bank decided to close the hedge fund down in the summer of 2008.

When Mr. Pandit co-founded Old Lane in 2006, he did so with a number of former Morgan Stanley colleagues. The men had left Morgan Stanley in a management shake-up. Mr. Pandit, who was the head of institutional sales and trading, started the firm with his colleagues John Havens and Guru Ramakrishnan, among others.

Given the pedigree of the leadership and the euphoric attitude toward hedge funds at the time, the Old Lane team raised billions to trade the markets. But, according to a Forbes piece, problems started early on for the firm.

Bad bets troubled the first few months out of the gate, and operations proved trying, especially given the fact that none of the team had managed money before. Among the issues: the firm had trouble calculating net asset value, a measure widely used in the hedge fund industry to calculate an investo r's holdings in near real-time.

Nonetheless, when Citi acquired the hedge fund, much of its staff came with it. Mr. Pandit was placed in charge of the alternatives investment group, while Mr. Havens became a leader in the same division.

Mr. Ramakrishnan, however, left after a little more than a year at the banking behemoth to start afresh. He and several other founders of Old Lane started a new hedge fund in late 2009, Meru Capital Partners.

The People Who Make Up Citi\'s Board

Vikram S. Pandit's sudden exit from Citigroup appears to have much to do with tension with the bank's board.

A check of the board's roster reveals a number of former Wall Street executives with lengthy experiences in banking. Many of the directors joined the board only within the past four years.

At the helm is Michael E. O'Neill, the firm's chairman for the last seven months. As DealBook has reported, Mr. O'Neill, a respected banking executive known for reviving the Bank of Hawaii, had clashed with Mr. Pandit over the direction of Citi and a lack of a stronger vision.

Three other financial services veterans also sit on Citi's current 12-member board. One is William S. Thompson Jr., a retired chief executive of the Pacific Investment Management Company and a former banker at Salomon Brothers, that was a predecessor to the current Citigroup.

Another is Diana L. Taylor, a former investment banker and New York state superintendent of banks who is curre ntly a managing director of Wolfensohn Fund Management. (She is also the longtime girlfriend of Mayor Michael R. Bloomberg of New York City.)

There is also Robert L. Joss, a former banker at Wells Fargo and onetime chief executive of the Westpac Banking Corporation who then served as the dean of Stanford's Graduate School of Business until 2009.

Also on the board is Joan E. Spero, a onetime executive vice president at American Express who led the financial services firm's corporate affairs and communications. She is currently a senior research scholar at Columbia's School of International Affairs.

One highly prominent name is Ernesto Zedillo, a former president of Mexico who now teaches at Yale.

Three current or former high-ranking corporate executives also sit on the board: Franz B. Humer, the chairman of the drug maker Roche Holding; Robert L. Ryan, a retired chief financial officer of Medtronic; and Lawrence R. Ricciardi, a onetime chief financial officer of I.B.M. who is now a senior adviser to Lazard and the law firm Jones Day.

Another director is Judth Rodin, the president of the Rockefeller Foundation and a former president of the University of Pennsylvania.

The final member of the board was added only within the past 24 hours: Michael L. Corbat, who took over for Mr. Pandit.

One of Mr. Pandit's biggest champions, the serial director Richard D. Parsons, left Citi's board in April, potentially leaving the now-departed chief executive without a strong defender. Mr. Parsons had previously praised Mr. Pandit's performance, declaring in 2010 that the then-chief “deserves to be paid.”

In Citigroup Shake-Up, a New Show of Power by Boards

The departure of Vikram S. Pandit shows clearly who is in charge of Citigroup: the board of directors. For good or for bad, boards are increasingly taking charge of corporate America. The reign of the imperial C.E.O. is over.

No reason was given in the press release announcing that Mr. Pandit had stepped down. And while the reports of what happened behind the scenes will slowly emerge as each side spins its story, there is no doubt that this was an unexpected and abrupt resignation. He left without the words that you usually see in such press releases about “spending more time with your family” or even language about “retirement” - and just as his compensation was beginning to rise again into the tens of millions of dollars.

The new show of power by the board is a remarkable turn of events. In the years leading up to the financial crisis, boards were criticized for letting chief executives rule unchecked. Remember, Citigroup was the place wher e Sandy Weill reigned supreme for years. It led to Charles O. Prince who lacked the ability to run the financial uber-conglomerate but also lacked a board that could appropriately supervise and monitor his actions let alone make a decision about the direction of the company. (Mr. Prince was the one, you may recall, who said in the years leading up to the financial crisis that “as long as the music is playing, you've got to get up and dance.”

Board supremacy is a general trend. In the wake of the financial crisis, the big banks have been forced to reconstitute their boards with Citigroup and Bank of America at the top of the list. But others like Goldman Sachs have also been pushed to bring in more competent people. The new directors are much more aware of what happened in the years leading up to the financial crisis, and to take action.

Not only have boards been pushed to bring in new, more active people, political and market forces are pushing board s into a greater role in the banks themselves. The Dodd-Frank Act charges boards with an enhanced duty to monitor systemic risk at financial institutions and requires the creation of risk management committees made up of independent directors for these banks.

Corporate governance advocates, meanwhile, are pushing boards to take a more active role not only in the hiring and firing of the chief executive but in the operation of the company.

The consequence is that not only do boards have more legal responsibility to run the company, they are being exhorted to do so. Boards are listening. The change is real and is amply underscored in the shake-up at Citigroup. Mr. Pandit's resignation is remarkable because it goes beyond what had been the traditional board role, which has been to stand back and hire or fire the C.E.O. Here, the board appeared to want to change the course of Citigroup's operations against the wishes of Mr. Pandit.

The lesson of Pandit's de parture is thus that boards are now expanding their focus and looking to veto or change a company's direction and operations. And that it is happening at a place like Citigroup, where for years being a director was more like being a minor royal â€" not much responsibility, but nice perks - is doubly remarkable.

The real question though is whether boards can run companies better than chief executives can. Boards comprise part time members who don't have the same interests at stake. They are also committees and thus may lack the wherewithal to properly execute. In fact, some blame the financial crisis on the failure of boards to correctly monitor financial institutions. But that is a developing story.

For now, we're now in a new world where the boards rule and are unafraid to exert their power. C.E.O.s, beware.

What Wall Street Is Saying About Citi

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.

Pandit Steps Down as Chief of Citigroup

10:26 a.m. | Updated

Citigroup's board said on Tuesday that Vikram S. Pandit had stepped down as chief executive, effective immediately, and would be succeeded by the head of the bank's European and Middle Eastern division, Michael L. Corbat.

His resignation comes after long-simmering tensions with the bank's board. In particular, the board's chairman, Michael E. O'Neill, had been increasingly critical of Mr. Pandit's management, according to several people close to the bank.

Mr. Pandit was seen by some board members as not being able to quickly and effectively execute strategy, lurching from crisis to crisis, these people said. There were concerns he lacked the breadth of vision needed to turn the bank around. “He was considered more technically skilled,” one Citi executive said.

John P. Havens, the bank's president and a longtime associate of Mr. Pandit's, has also resigned.

Some at the bank said on Tuesday that they believed Brian Leach, the bank's chief risk officer, could depart soon as well, especially because he was extremely close to Mr. Pandit.

Inside the bank, the news was greeted with shock. A huge gasp was audible on the trading floor in Manhattan as employees watched the news on monitors showing CNBC, according to several employees. When Mr. Havens's resignation was reported, some employees on the trading floor jumped up from their chairs.

The surprising departures come just a day after the firm reported stronger-than-expected third-quarter earnings. Excluding a number of one-time charges - including a big loss tied to the continued exit from the Smith Barney brokerage - Citigroup earned $3.27 billion, or $1.06 a share. That exceeded analysts' average estimate of 96 cents a share.

“There is nothing better than our third-quarter earnings announcement to demonstrate definitively that we have turned this company around,” Mr. Pandit said in a memo to employees.

Yet those results paled in comparison with the earnings announced on Friday by JPMorgan Chase and Wells Fargo. Spurred by exceedingly low interest rates, and the Federal Reserve bond-buying program, there has been a recent resurgence in mortgage lending, bolstering those banks.

Yet Citigroup appeared to have been caught flat-footed. In its earnings call on Monday, John Gerspach, the bank's chief financial officer, intimated that the bank was slow in staffing up to deal with the mortgage activity.

Within the board, some believed Mr. Pandit's lack of foresight and planning contributed to the bank's missed opportunity, the people close to Citigroup said.

Shares of Citigroup were up slightly in midmorning trading on Tuesday.

Discussions to line up a ready successor to Mr. Pandit have been in the works at Citigroup over the last year, according to several people familiar with the matter. One leading candidate to succeed Mr. Pandit had been Jamie Forese, head of securities and banking. Inside the bank, however, Mr. Pandit had expressed his commitment to stay at the helm of the bank until it was on firmer footing.

During Mr. Pandit's tenure, which began in December 2007, the bank struggled through enormous market upheaval and needed several rescue lines from the government. But it has slowly recovered, in large part by shedding big portions of its businesses. Among them is Smith Barney, the brokerage operation that is being absorbed by Morgan Stanley.

“Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm at Citigroup,” Mr. Pandit said in a statement. “I could not be leaving the company in better hands.”

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With his departure, just two men who ran Wall Street banks during the financial crisis remain in their posts: Jamie Dimon of JPMorgan Chase and Lloyd C. Blankfein of Goldman Sachs. Both firms rebounded from the upheaval much more quickly and strongly than Citigroup.

Mr. Pandit, an immigrant from India who quickly ascended the ranks of Morgan Stanley before turning to hedge funds, was long seen as an unusual choice to lead Citigroup. But the banking giant purchased Old Lane, his investment firm, and then tapped him in December 2007 to do what a succession of leaders could not: push the firm back to profitability.

Born of a string of acquisitions by Sanford I. Weill, Citigroup initially seemed like an imposing colossus on Wall Street, combining investment and consumer banking, hedge fund services and insurance. But the firm whose birth presaged the fall of decades-old banking regulations pr oved unwieldy to manage, with a labyrinthine bureaucracy and underperforming divisions.

Under Charles O. Prince III, Mr. Pandit's predecessor, the firm announced more than $18 billion in write-downs because of souring investments in complex mortgage securities known as collateralized debt obligations.

When stepping down, Mr. Weill was very deliberate in choosing his successor. Later, he regretted, privately, that he had not spurred more competition before tapping Mr. Prince.

In an acknowledgment of the difficult task ahead, Mr. Pandit said that he would take a token $1 annual salary until the firm began earning profit again. But the untested chief executive struggled with turbulent markets, culminating in the financial crisis that left Citigroup in need of a $45 billion bailout from the government.

He quickly adopted a deferential tone to Congress and regulators, backing tougher banking rules and moving quickly to shed nonessential businesses like Smi th Barney. His ultimate goal had been to transform Citigroup into a smaller bank that focused on safer investment banking and consumer and corporate lending.

Mr. Pandit first brought Citigroup back to profitability two years ago, and by the end of 2010 the government had cashed out its remaining investment in the firm, earning a $12 billion profit for taxpayers. That performance drew praise from many within the firm's ranks: “The man deserves to be paid,” Richard D. Parsons, the bank's then-chairman, told New York magazine that year.

The bank's shareholders were less certain about that, still dissatisfied with a firm whose stock had fallen 89 percent since he took over. They vetoed a $15 million pay package for Mr. Pandit in April, in the first major rebuke against the chief of a major financial firm.

As head of Citigroup's business in Europe, the Middle East and Africa, Mr. Corbat represents what many on the board consider the bank's new direction, acc ording to several people familiar with the matter.

The bank has been working to focus its growth on international markets that are not riven by the same problems as the United States.

Also adding to Mr. Corbat's desirability, he helped wind down some of the soured assets in Citi Holdings.

As news of the management upheaval spread throughout the ranks at Citigroup on Tuesday morning, some employees pointed to Mr. Corbat's elevation to chief executive as a censure of Mr. Pandit's leadership.

Mr. Corbat, in an internal memo to employees on Tuesday, said he would begin by immersing “myself in the businesses and review reporting structures.”

But some employees noted that Mr. Corbat had already indicated change ahead. In the memo, he said: “These assessments will result in some changes, and I will make sure to communicate these changes with you as decisions are made so that you are informed and updated.”

The bank has struggled to make up for lackluster revenue. In March, Citigroup was waylaid by a decision from the Federal Reserve to reject the bank's proposal to buy back shares and increase its dividend.

Goldman Beats Expectations

GOLDMAN BEATS EXPECTATIONS  |  Goldman Sachs may be getting its groove back. The Wall Street firm said on Tuesday that it swung to a profit in the third quarter, reporting net earnings applicable to common shareholders of $1.46 billion, compared with a loss of $428 million in the quarter a year ago. The third-quarter profit amounted to $2.85 a share, beating the $2.12 a share analysts were expecting. Goldman also said it was increasing its dividend to 50 cents from 46 cents. (The conference call to discuss the results is at 9:30 a.m. Dial 1-888-281-7154 to listen in the United States.)

One risk still looms for Goldman, as a new book by a former employee, Greg Smith, is set to be released next week. But judging by the first chapter, it is not entirely clear what dirt Mr. Smith might reveal in “Why I Left Goldman Sachs,” DealBook's Susanne Craig writes. Mr. Smi th illustrates Goldman's famously competitive culture with anecdotes about folding stools and a Cheddar cheese salad. The other chapters, with titles like “Welcome to the Casino” and “Monstrosities,” may prove more embarrassing for the firm, Ms. Craig notes.

Goldman added a new board member on Monday, naming Adebayo O. Ogunlesi as an independent director. Mr. Ogunlesi, a well-known Wall Street figure who once said he did not fit the mold of a typical investment banker, runs Global Infrastructure Partners, a private equity firm that recently raised a $8.25 billion fund.

Over all, it has been a year of retrenching in the financial industry, and the cutbacks have had an effect on New York City's economy. The City Room blog writes that smaller bonuses on Wall Street were “the main reason Manhattan was the only large county in the country to record a decline in wages in the latest 12-month period for which figures are available, according to the federal Bure au of Labor Statistics in New York.”

 

THE BAILOUT BLUES  |  Jamie Dimon was hailed as the King of Wall Street when JPMorgan Chase bought Bear Stearns in March 2008 in a government-brokered deal. But he has lately been having second thoughts about Bear, which is the target of a new lawsuit filed by New York's attorney general. Andrew Ross Sorkin writes in the DealBook column: “Whether you love or hate Wall Street, whether you want bankers to go to jail or not, the recent series of suits brought by the government may have a profound impact on how businesses react to being asked to provide assistance when the next financial crisis arrives. Chances are, they won't.”

 

AN INSIDER'S PLAN TO LIMIT BANK SIZE  |  Daniel K. Tarullo, a Federal Reserve governor, made a splash last week when he urged Congress to consider limiting the size of banks' balance sheets. DealBook's Peter Eavis writes that lawmakers on both sides of the aisle may warm to that idea. “I am completely open to the proposal because of my similar concern about the growing size of institutions that are too big to fail,” said Senator David Vitter, a Republican of Louisiana. “Beyond this specific proposal, there is a growing nonpartisan consensus to do a lot more to limit the size of the megabanks.”

 

ON THE AGENDA  |  Mitt Romney and President Obama meet Tuesday night in the second presidential debate. Mr. Romney, the Republican candidate, has cultivated some well-placed friends on Wall Street, who held a fund-raising event Monday evening, DealBook's Peter Lattman reports. The event's nearly 200 co-chairs included John Paulson of Paulson & Company and Josh Harris and Marc Rowan, the co-founders of Apollo Global Management. Another host, Paul E. Singer of Elliott Management, recently donated $250,000 to support same-sex marriage in Maryland, Politico reports.

Stephen Siderow, co-founder of the hedge fund BlueMountain Capital, is on Bloomberg TV at 1 p.m. Justin Rosenstein, who works with Dustin Moskovitz at the start-up Asana, is on Bloomberg TV at 6 p.m. Coca-Cola, Johnson & Johnson, State Street and UnitedHealth report earnings before the bell. In London, Bloomberg Link hosts a conference on currency markets. The Consumer Price Index for September is out at 8:30 a.m., and data on industrial production for September comes out at 9:15 a.m.

 

SOFTBANK'S BIG GAMBLE  |  With a $20.1 billion deal to take control of Sprint, SoftBank of Japan is “making a risky wager that it can break the dominance of Verizon and AT&T in the United States the way it did a similar duopoly that long reigned over the Japanese market,” DealBook's Michael J. de la Merced writes. But SoftBank's investors may be concerned that the chief executive, Masayoshi Son, is letting his ego guide his thinking, The Wall Street Journal's Heard on the Street column writes. Mr. Son said on Monday, “Every man wants to be No. 1.” Still, SoftBank's shares rebounded on Tuesday, climbing 9.5 percent, after two days of declines.

The deal strengthens Sprint, expanding its customer base and giving it more purchasing power, DealBook notes. But it raises questions about another wireless company, Clearwire, which is seen as a potential takeover target in the future. Clearwire's shares were up nearly 16 percent on Tuesday.

 

YAHOO'S NEW C.O.O.  |  Marissa Mayer, who is back at Yahoo after a two-week maternity leave, announced on Monday that she had hired Henrique De Castro, a vice president at Google, to be Yahoo's chief operating officer. Mr. De Castro's compensation will include a $600,000 base salary plus a bonus that could be twice that much, the Bits blog writes.

 

 

 

Mergers & Acquisitions '

How the BlackBerry Lost Its Cool  |  Research in Motion is confronted by a growing number of consumers who say they feel “ashamed” of their BlackBerry devices. NEW YORK TIMES

 

Rothschild Resigns from Board of Mining Company  |  The British financier Nathaniel Rothschild said he regretted having partnered with the Bakrie family, an Indonesian dynastic clan that helped him build the London-listed mining company Bumi. DealBook '

 

CNH Rejects Merger Deal From Fiat Industrial  |  Fiat Industrial, which manufactures capital goods like trucks and commercial vehicles, had hoped the deal would allow it to obtain a listing in the United States. DealBook '

 

When the C.F.O. Isn't Wanted on the Board  |  The Wall Street Journal writes: “Chief financial officers serving as directors at their own companies are a dying breed, thanks to a push for greater board independence.” WALL STREET JOURNAL

 

Flynt to Buy a Movie Distributor  |  Larry Flynt, the adult entertainment mogul, is paying about $33 million for New Frontier Media, which offers pay-per-view adult programming. WALL STREET JOURNAL

 

INVESTMENT BANKING '

S.&P. Downgrades Big Spanish Banks  |  Banco Santander and B.B.V.A., along with nine other Spanish banks, had their ratings cut by Standard & Poor's. BLOOMBERG NEWS

 

Spain Said to Consider Asking for Credit Line From Europe  | 
WALL STREET JOURNAL

 

Citigroup in the Shadows  |  Bloomberg News writes that Vikram S. Pandit of Citigroup “is among the most vocal critics of shadow banking, the lightly regulated lending that can mask risk in the financial system. He's also among the kings of the business.” BLOOMBERG NEWS

 

Bank of America Hires Chairman of China Operations  |  Margaret Ren, an investment banker who is a daughter-in-law of a former Chinese premier, has connections in China that could help her in her new role, The Wall Street Journal notes. WALL STREET JOURNAL  |  REUTERS

 

Iranian Hackers Blamed for Cyberattacks on Banks  | 
WALL STREET JOURNAL

 

A Banker's Experience on Bath Salts  |  According to a recording released by the Los Angeles police union, a Deutsche Bank executive claimed to have ingested so-called bath salts stimulants at the time of an incident in May, The Los Angeles Times reports. LOS ANGELES TIMES

 

PRIVATE EQUITY '

A Lack of Private Equity Opportunities in China  |  The Wall Street Journal reports: “China's private equity investors are finding fewer opportunities and smaller returns compared to even four years ago.” WALL STREET JOURNAL

 

Snack Company Yields a Tasty Profit  |  The private equity firm VMG Partners made a return of more than eight times on its investment in Snack Factory, which it sold for $340 million to another company, The Wall Street Journal reports. WALL STREET JOURNAL

 

AXA Private Equity Adds New York Executive to Its Board  | 
REUTERS

 

HEDGE FUNDS '

Funds Focused on Emerging Markets Stand Out  |  Hedge funds focused on emerging markets have had gains of nearly 8 percent this year, compared with about 5 percent for a typical hedge fund, according to Reuters. REUTERS

 

Financial Advisers and the New Hedge Fund Ad Rules  |  After hedge funds are able to promote their businesses more freely, some financial advisers could “face pressure from investors attracted to altern ative investments they see marketed in glossy magazine ads or on television,” The Wall Street Journal writes. WALL STREET JOURNAL

 

I.P.O./OFFERINGS '

Telefonica Sets Terms for I.P.O. of German Unit  |  The Spanish telecommunications giant Telefónica, which is seeking to reduce its heavy debt load, says it will raise around $2 billion through an initial public offering of its German business. DealBook '

 

Fosun Pharmaceutical Said to Plan Hong Kong I.P.O.  |  The company, which is said to be aiming to raise up to $591 million, would be the “first significant new listing since July in the Hong Kong market,” The Wall Street Journal reports. W ALL STREET JOURNAL

 

VENTURE CAPITAL '

The V.C. Deal That Got Away  |  Norwest Venture Partners, which turned down an opportunity to invest in Workday, “has got to be kicking itself,” Fortune's Dan Primack writes. FORTUNE

 

Start-Up Aims to Make TV More Interactive  |  Viggle, a start-up based in New York, “hopes to become the entertainment industry's chief loyalty-rewards program,” Fortune writes. FORTUNE

 

LEGAL/REGULATORY '

New York Fed Turns Over New Libor Documents  |  The Federal Reserve Bank of New York turned over nearly 6,000 pages to a House subcommittee that is examining whether the regulator had turned a blind eye to Libor rate-rigging during the financial crisis. DealBook '

 

Homeowners Sue Banks Over Libor Manipulation  | 
BLOOMBERG NEWS

 

Fed Official on the Shortcomings of Monetary Policy  |  William C. Dudley, president of the Federal Reserve Bank of New York, spoke on Tuesday about the central bank's policy before the recent expansion of its stimulus: “With the benefit of hindsight, monetary policy needed to be still more aggressive.” NEW YORK TIMES ECONOMIX

 

Nomura Is Fined $3.8 Million for Leaking Info rmation  | 
BLOOMBERG NEWS

 

Tax Proposal in Mongolia Threatens Rio Tinto Project  |  Mongolia's new government is in the process of passing a 2013 budget whose draft proposal includes increasing taxes and royalties by $300 million on a huge copper mine. If Rio Tinto seeks international arbitration to resolve the issue, it could delay the start date for the mine. DealBook '

 

American Politics and Chinese Data  |  In the midst of increasingly heated election rhetoric about China, Beijing has released some important economic data as its currency reached record highs, Bill Bishop writes in the China Insider column. What DealBook readers need to know about China this week. DealBook '

 

Financier Behind ‘Rebecca' Is Arrested  |  Mark C. Hotton, a stockbroker who is accused of defrauding the producers of the Broadway musical “Rebecca,” was arrested on Monday, The New York Times reports. NEW YORK TIMES

 

Law Firm for UBS Whistle-Blower Seeks Share of Award  | 
BLOOMBERG NEWS

 

Bank of America Merrill Lynch Hires Chairman for China Operations

Bank of America Merrill Lynch is bolstering its operations in China with the appointment of a new executive.

The bank has hired Margaret Ren to lead its Chinese operations, according to an internal memorandum obtained by DealBook. Ms. Ren joins the company from BNP Paribas, where she was the corporate finance chairman for greater China.

Ms. Ren is a daughter-in-law of Zhao Ziyang, a former general secretary of China's Communist Party. She has “extensive knowledge of, and deep relationships with, the Chinese financial and corporate sectors,” according to the internal memorandum.

As country executive and chairman of Bank of America Merrill Lynch in China, Ms. Ren will report to Matthew Koder, the bank's president for the Asia-Pacific region.

Interacting with clients will be a crucial part of her new role, as the bank looks to win more business in the region. The move is a homecoming of sorts for Ms. Ren, who was chairman of China investment bankin g for Merrill Lynch from 2007 to 2009.

Ms. Ren made headlines in 2004 when she was suspended from Citigroup after regulators began looking into a deal she worked on, the I.P.O. of the China Life Insurance Company. But she was cleared of any wrongdoing by the Securities and Exchange Commission in 2006.

Meet Citi\'s New C.E.O.

When Michael L. Corbat was an all-conference lineman on the Harvard football team 30 years ago, he seemed better positioned for the N.F.L. gridiron than the Wall Street trading floor.

“It has given me everything that I would have hoped for,” the 230-pound Mr. Corbat told The Harvard Crimson at the time, referring to his college career.

But Mr. Corbat earned an economics degree in 1983, and on Tuesday he took the reins at Citigroup, succeeding Vikram S. Pandit, who stepped down after five years in charge of the bank.

“The fundamentals we have in place today are solid, and we are on the right path,” Mr. Corbat said in a statement announcing the personnel change.

Mr. Corbat, 52, has been a Citigroup lifer. After Harvard, he joined Salomon Brothers, which was taken over by Citi in 1998. He started as a bond salesman in Atlanta, before climbing to managing director for high yield and derivatives.

“He is a great guy - knows clients and pr oducts well,” said Robert Wolf, the former UBS executive who worked with Mr. Corbat for about 10 years at Salomon Brothers and now runs the consulting firm 32 Advisors. (The pair also bonded over their Ivy League football careers, recalled Mr. Wolf, who played for the University of Pennsylvania.)

At Citigroup, executives portray Mr. Corbat as a jack-of-all-trades. He has worked many divisions, including investment banking and retail banking. The bank most recently dispatched Mr. Corbat to London to become chief executive of Citigroup's broad operations in Europe, Africa and the Middle East.

His other management roles covered sales and trading, and corporate and commercial banking. When the bank ousted Sallie L. Krawcheck at the height of the 2008 financial crisis, Mr. Corbat took over as head of the global wealth management unit.

“From his nearly three decades at the company he brings deep and varied operating experience across a broad spectrum of the f inancial services industry,” Michael E. O'Neill, chairman of the Citigroup board, said in a statement on Tuesday.

In perhaps his most important role, Mr. Corbat helped steer the bank through the financial crisis. As head of Citi Holdings, the “bad bank” created in the aftermath of the crisis, he oversaw Citigroup's disastrous mortgage portfolio and the sale of several noncore businesses. Citigroup slowly regained its footing, and Mr. Corbat, who made $9 million in 2010, became a potential heir to Mr. Pandit.

The board wants “to open a new chapter and this will do it well,” said Sheila Bair, former head of the Federal Deposit Insurance Corporation and a critic of Mr. Pandit. She knows Mr. Corbat from run-ins during the dark days of the financial crisis.

“He was involved in several meetings with us,” she said in an interview with DealBook, adding, “He was prepared and he knew his stuff.”

A native of Bristol, Conn., Mr. Corbat is also active in the Swedish American Chamber of Commerce and is a board member of the United States Ski and Snowboard Team.

At Harvard, he was known as something of a ladies' man. “The ladies who serve and prepare the food at Currier House all have crushes on senior Mike Corbat,” The Harvard Crimson wrote in 1982.

The campus hype spawned talk of an N.F.L. career, but Mr. Corbat was set one on Wall Street.

“I'm just not psyched to be somebody's piece of meat somewhere,” he said.

Business Day Live: A Surprising Departure

Vikram Pandit resigns as chief executive of Citigroup. | “Glengarry Glen Ross” as a classroom text on business ethics. | How a loan relief plan may help well-off students the most.

Goldman Sachs Swings to Profit as Revenue Surges

Goldman Sachs said on Tuesday that it swung to a profit in the third quarter, a strong comeback from a year ago, when it reported a rare quarterly loss in the wake of losses in its private equity portfolio and broader global economic issues.

For the quarter, the firm reported net earnings applicable to common shareholders of $1.46 billion, or $2.85 a share, compared with a loss of $428 million, or 84 cents a share, in the quarter a year earlier.

Goldman's revenue more than doubled in the quarter, to $8.35 billion, from $3.59 billion in the year-ago period. The results exceeded the consensus of Wall Street analysts surveyed by Thomson Reuters.

“This quarter`s performance was generally solid in the context of a still challenging economic environment,” Lloyd C. Blankfein, Goldman's chairman and chief executive, said in a statement.

The quarter's better-than-expected performance is no doubt welcome news for Goldman, which has had a tough year as it has struggled against both economic challenges at home and abroad and new regulations that have reduced its profitability.

Goldman is not alone in feeling the pinch in profits, and this quarter its rivals were aided by revenue from the boom in mortgage refinancing, a corner of the market in which Goldman does not have a big presence.

Still, net revenue in Goldman's powerful fixed Income, currency and commodities unit came in at $2.22 billion, 28 percent higher than the third quarter of 2011. The company said this this increase reflected “significantly higher” revenues from trading in mortgages as well as a bump in revenue from trading items like currencies and interest rate products.

During the first half of the year the firm overall earned roughly $3 billion in profit, down 20 percent from the same period last year.

The results also included a nice bump in the firm's quarterly dividend, which the board recently voted to increase by 4 cents , to 50 cents a share.

L.A. Banker Spoke of Using Bath Salts Before Police Trouble

Telefonica Sets Terms for German Unit I.P.O.

LONDON â€" The Spanish telecommunications giant Telefónica said on Tuesday that it would raise around 1.5 billion euros ($2 billion) through the initial public offering of its German business.

The announcement comes as the Madrid-based company is looking to reduce its debt, which currently amounts to about $75 billion.

Under the terms of the listing, Telefónica said it would sell up to a 23 percent stake in its O2 brand in Germany. It has set the price range between 5.25 euros and 6.50 euros a share.

The company plans to sell the shares between Oct. 17 and Oct. 29, with trading set to start on the Frankfurt stock exchange on Oct. 30. Based on the mid-point of the proposed price range, the I.P.O. would give Telefónica's German unit a market value of around 6.6 billion euros.

To entice investors, Telefónica Deutschland has said it will pay a combined 500 million euro dividend to shareholders next year. Its Spanish parent company has canceled its own payout in an effort to reduce costs.

Last week, Telefónica agreed to sell Atento, its call center business, to the private equity firm Bain Capital for $1.3 billion in a bid to raise much-needed cash.

UBS and JPMorgan Chase are managing the I.P.O.