chief risk officer

DealBook: Pandit Steps Down as Chief of Citigroup

October 16, 2012 by NewsMaker Leave a Comment

11:58 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.

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Timeline: Pandit’s Tenure

Hiroko Masuike for The New York TimesMichael Corbat was the head of Citigroup’s European and Middle Eastern division.

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 nearly 1 percent by midday 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.”

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 proved 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 Smith 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.

Often shareholders find themselves on the hook for millions of dollars in exit payments to executives with so-called golden parachutes, ironclad agreements that entitle them to big payouts on their way out the door. Yet neither Mr. Pandit nor Mr. Havens had employment agreements, according to regulatory filings reviewed for DealBook by Disclosure Matters, a company that specializes in analyzing corporate documents.

Other, more limited agreements with the men 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.

The lack of an employment agreement does not necessarily mean Mr. Pandit is leaving empty-handed. Departing executives often receive special exit packages, negotiated at the time of departure or soon after; these sometimes are not disclosed for days or even weeks. But without such an agreement, Mr. Pandit is likely to have to give up 333,333 options and 240,732 shares awarded last year.

Citigroup did not respond to a request for comment on these disclosures.

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, according 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.

Susanne Craig contributed reporting.

Article source: http://dealbook.nytimes.com/2012/10/16/pandit-steps-down-as-citis-chief/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: chief risk officer, longtime associate, wall street

DealBook: U.S. Suit Says 6 Executives at Loan Giants Misled Market

December 16, 2011 by NewsMaker Leave a Comment

Jacquelyn Martin/Associated PressRobert S. Khuzami, the Securities and Exchange Commission‘s director of enforcement.

The Securities and Exchange Commission has brought civil actions against six former top executives at the mortgage giants Fannie Mae and Freddie Mac, saying that the executives did not adequately disclose their firms’ exposure to risky mortgages in the run-up to the financial crisis.

The case is one of the most significant federal actions taken against top executives at the center of the housing bust and ensuing financial crisis. Fannie Mae and Freddie Mac have been lightning rods in Washington as symbols of the excessive risk-taking that pushed the country into an economic downturn.

The agency filed complaints on Friday in the United States District Court in Manhattan against three former executives at Fannie Mae – its chief executive, Daniel H. Mudd; chief risk officer, Enrico Dallavecchia; and executive vice president, Thomas A. Lund.

Freddie Mac’s former chief executive, Richard F. Syron; Patricia Cook, its chief business officer; and its executive vice president, Donald J. Bisenius, were also named in a separate complaint.

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, the head of enforcement for the S.E.C., said in a statement. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”

As part of its announcement, the S.E.C. said that Fannie Mae and Freddie Mac agreed to settle with regulators and cooperate with its investigation of former executives. The Justice Department has also investigated the two mortgage giants, but no charges have been brought.

The S.E.C.’s cases against the executives will rely heavily on whether the two mortgage companies underreported or misled investors about their ownership of subprime loans and mortgages that required few documents from borrowers in the years leading up to and including the housing bust.

The complaint alleges, for instance, that Fannie Mae executives described subprime loans as those made to individuals “with weaker credit histories” while only reporting one-tenth of the loans that met that criteria in 2007. The S.E.C. complaint contends that Freddie Mac executives falsely proclaimed that certain businesses had virtually no exposure to ultra-risky loans.

But Mr. Mudd, who was C.E.O. of Fannie Mae from 2005 until the government took control of the company in 2008, said that there had been no deception.

“The government reviewed and approved the company’s disclosures during my tenure, and through the present,” he said in a statement. “Now it appears that the government has negotiated a deal to hold the government, and government-appointed executives who have signed the same disclosures since my departure, blameless– so that it can sue individuals it fired years ago.”

“This is a lawsuit that should never have been brought in the United States of America,” he said.

In its statement, lawyers for Mr. Syron called the S.E.C.’s case “fatally flawed” and “without merit.”

“Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to asses the degree of risk in Freddie Mac’s guaranteed portfolio,” Thomas C. Green and Mark D. Hopson, partners at Sidley Austin, said in the statement.

Michael M. Levy, a lawyer for Mr. Lund, said his client did not mislead anyone. “During a period of unprecedented disruption in the housing market, nobody worked more diligently or honestly to serve the best interests of both investors and homeowners,” Mr. Levy said. “When the truth comes out at trial, it will be abundantly clear that Mr. Lund — who did not sell a single share of Fannie Mae stock during this entire period — acted appropriately at all times.”

Still, the S.E.C., which has been maligned for failing to detect the crisis or punish its culprits, took pains Friday to underscore its renewed efforts to crack down on wrongdoing at the highest levels of Wall Street and corporate America.

“They are just the latest in a long line of financial related cases,” Mr. Khuzami said, noting that the agency has now filed 38 separate actions stemming from the crisis.

The case against the mortgage giants mirrors an earlier action against one of the nation’s biggest lenders to risky, or subprime, borrowers. Angelo Mozilo, the former chief executive and founder of Countrywide Financial, agreed to pay $22.5 million to settle federal charges along the same lines. The settlement was the largest ever levied against a senior executive of a public company, though Mr. Mozilo, who also agreed to forfeit $45 million in gains, neither admitted nor denied wrongdoing.

The S.E.C. has spent roughly two years interviewing former and current employees of Fannie Mae and Freddie Mac.

Earlier this year, the agency sent Wells notices, which warn of potential enforcement actions, to a number of top executives at the two firms. At the time, Mr. Syron, Mr. Mudd, Mr. Bisenius and Mr. Piszel all challenged those potential accusations.

Mr. Mudd and Mr. Syron are the two most prominent subjects of the complaint.

Since August 2009, Mr. Mudd has been chief executive of Fortress Investment Group, the large publicly traded private equity and hedge fund company.

In a statement, Gordon E. Runté of Fortress said: This morning, the S.E.C. filed a civil complaint against Dan Mudd, related to matters associated with his previous employment at Fannie Mae. The complaint does not relate to Fortress, and this matter has not impacted our company or our business operations. We are undertaking a thorough review of the matters addressed in the complaint.”

Mr. Syron is a former president of the American Stock Exchange and currently an adjunct professor and trustee at Boston College.

A lawyer for Mr. Dallavecchia did not immediately respond to a request for comment.

Lawyers for Ms. Cook and Mr. Bisenius could not immediately be reached for comment.

Fannie Mae and Freddie Mac were created by Congress to facilitate homeownership. Though they do not loan money to borrowers themselves, they buy mortgages from lenders and resell them in packages to investors, which allows banks and others to issue more loans. By 2005, the two companies began an aggressive push to expand their mandate to include less-fortunate borrowers who were typically excluded, an effort encouraged by lawmakers and lenders. The companies were also looking to reclaim business from Wall Street, which was thriving in the world of subprime mortgages.

But by the middle of 2008, as the housing market was sinking, exposure to subprime and other weak borrowers threatened the two companies. The Bush administration stepped in to rescue the two mortgage giants in September 2008, taking control of them in the process. Since then, the government has loaned the Fannie Mae and Freddie Mac more than $100 billion.

That the settlement with the two companies did not include a fine reflects their financially precarious situation. The Obama administration announced plans earlier this year to wind down the two companies.

S.E.C. v Mudd, Dallavecchia and Lund

S.E.C. v Syron, Cook and Bisenius

Article source: http://dealbook.nytimes.com/2011/12/16/s-e-c-sues-6-former-top-fannie-and-freddie-executives/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: chief risk officer, federal actions, risky mortgages

DealBook: S.E.C. Sues 6 Former Top Fannie and Freddie Executives

December 16, 2011 by NewsMaker Leave a Comment

Jacquelyn Martin/Associated PressRobert S. Khuzami, the Securities and Exchange Commission’s director of enforcement.

The cases represent the first major action by the federal agency in its more than three-year investigation of the government-controlled mortgage giants that were at the center of the housing crisis.

The agency filed complaints against three former executives at Fannie Mae – its chief executive, Daniel H. Mudd; chief risk officer, Enrico Dallavecchia, and executive vice president Thomas A. Lund.

Freddie Mac’s former chief executive, Richard F. Syron; Patricia Cook, its chief business officer, and executive vice president Donald J. Bisenius were also named in a separate complaint.

The S.E.C.’s cases against executives will rely heavily on whether the two mortgage companies underreported or misled investors about their ownership of subprime loans and mortgages that required few documents from borrowers in the years leading up to and including the housing bust.

The complaint alleges, for instance, that Fannie Mae executives described subprime loans as those made to individuals “with weaker credit histories” while only reporting one-tenth of the loans that met that criteria in 2007. The S.E.C. complaint contends that Freddie Mac executives falsely led proclaimed that certain businesses had virtually no exposure to ultra-risky loans.

The S.E.C., which spent roughly two years interviewing former and current employees of the two companies, has been under tremendous pressure to produce cases in the wake of the financial crisis.

Mr. Mudd and Mr. Syron are the two most high-profile subjects of the complaint. Mr. Mudd is now chief executive of private equity giant the Fortress Investment Group. Mr. Syron is a former president of the American Stock Exchange and currently an adjunct professor and trustee at Boston College.

Lawyers for Mr. Syron and Mr. Mudd did not immediately respond to requests for comment. Lawyers for Mr. Dallavecchia, Mr. Lund, Ms. Cook and Mr. Bisenius could not immediately be reached for comment.

Fannie Mae and Freddie Mac were created by Congress to help facilitate homeownership. Though they do not loan money to borrowers themselves, they buy up mortgages from lenders and resell them in packages to investors, which allows banks and others to issue more loans. By 2005, the two companies began an aggressive push to expand their mandate to include less fortunate borrowers typically excluded, an effort encouraged by lawmakers and lenders. The companies were also looking to reclaim business from Wall Street, which was thriving in the world of subprime mortgages.

S.E.C. v Mudd, Dallavecchia and Lund

S.E.C. v Syron, Cook and Bisenius

Article source: http://feeds.nytimes.com/click.phdo?i=bf9883ed2fef5a99a98d85d406156d75

Filed Under: Business News Tagged With: chief risk officer, fannie mae and freddie mac, risky mortgages

Bankers Named Who Doubted Madoff

April 15, 2011 by NewsMaker Leave a Comment

Those executives are John J. Hogan, the bank’s chief risk officer for investment banking; Matthew E. Zames, who oversees several important bank trading operations; and Carlos M. Hernandez, the head of global equities at the bank’s investment banking unit.

The identity of those executives is the latest bit of news produced by the bitter courthouse fight between the global banking giant and Irving H. Picard, the bankruptcy trustee gathering assets for victims of Mr. Madoff’s fraud, which wiped out investor accounts valued at almost $65 billion when it collapsed in December 2008.

Mr. Madoff operated his fraud primarily through an account he maintained at JPMorgan Chase. In addition, the bank created and sold its clients derivatives that were linked to various feeder funds that invested with Mr. Madoff, and it invested in those funds to hedge its risks on those derivatives.

In December, Mr. Picard filed a lawsuit seeking $6.4 billion in damages, fees and profits from the bank, asserting that its high-level doubts about Mr. Madoff’s honesty and its failure to act on those doubts to protect investors made it complicit in Mr. Madoff’s fraud.

That lawsuit did not disclose the identity of the bank executives who were involved in the bank’s assessment of Mr. Madoff, but a federal bankruptcy judge ruled earlier this week that the names had to be disclosed, and a new version of the case was filed on Thursday.

In response to the new filing, Jennifer Zuccarelli, a spokeswoman for the bank, again denied the trustee’s assertions that the bank was complicit in Mr. Madoff’s fraud, calling such accusations “patently false.”

The bank “complied fully with all applicable laws and regulations” in its dealings with Mr. Madoff and has “strong defenses to the claims brought by the Madoff trustee.”

The bank had opposed releasing the names of the senior executives on the grounds that it would violate their personal privacy and embarrass them needlessly.

The new filing by the trustee cleared up one of the mysteries in the redacted lawsuit: the executive who told a senior executive in June 2007 that Mr. Madoff’s returns “are speculated to be part of a Ponzi scheme” was Mr. Zames, a member of the bank’s executive committee who is often cited as a young star who could snag the bank’s top job someday.

His warning was given over lunch to Mr. Hogan, who is also a member of the executive committee. The new filing also showed that Brian Sankey, Mr. Hogan’s deputy, was the executive who, after Mr. Madoff’s arrest, advised that it would be best if the agenda of the meeting at which Mr. Zames’s doubts were discussed “never sees the light of day again.”

Mr. Hernandez was among the other bank executives who learned about Mr. Zames’s doubts that summer, according to the newly filed lawsuit.

The new filing also identified the bank executive who refused to put his private banking clients’ money in Madoff-related funds. It was Michael Cembalest, a chief investment officer at the bank’s private banking unit. His team investigated Mr. Madoff and, “after seeing all of the red flags, chose not to invest” in any of the feeder funds, the lawsuit noted.

Article source: http://feeds.nytimes.com/click.phdo?i=11008b71129f2dca34ea1573bf50f01b

Filed Under: Business News Tagged With: accusations, chief risk officer, investor accounts