April 1, 2023

DealBook: In Citigroup Shakeup, a New Show of Power by Boards

Michael O'Neill, the chairman of Citigroup, in 2009.Shannon Stapleton/ReutersMichael O’Neill, the chairman of Citigroup, in 2009.

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 chief executive is over.

No reason was given in the news 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 announcements 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 where Sandford I. Weill reigned supreme for years. It led to Charles O. Prince III, who lacked the ability to run the financial 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.”

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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 boards 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 amply underscored in the shakeup 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 chief executive. 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 departure is 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 – 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. Chief executives, beware.

Article source: http://dealbook.nytimes.com/2012/10/16/in-citigroup-shake-up-a-new-show-of-power-by-boards/?partner=rss&emc=rss

DealBook: Bad Year for Wall Street Not Reflected in Chiefs’ Pay

Wall Street stocks and profits took a beating in 2011. But there is one corner of the Street that took a lighter hit: the compensation paid to chief executives.

Three big banks disclosed on Friday what their top executives will receive in deferred stock for their work in 2011. Such stock is expected to make up most of their bonus as banks are increasingly paying employees more in deferred stock. Those awards to top bank executives are coming as lower-level employees are finding out that their own bonuses will be much smaller than a year ago.

Brian Foley, a compensation expert in White Plains, said that for top executives, he would have expected “the belt to come in a few more notches” this year given the banks’ lackluster stock performance. He added that executive suite pay packages this year might further lower morale inside the banks.

“A lot of people in the middle took big hits this year,” he said. “It could create some big ‘us versus them issues’ as to why the rank and file are taking a bigger hit than the senior executives.”

Vikram S. Pandit, chief of Citigroup.Peter Foley/Bloomberg NewsVikram S. Pandit, chief of Citigroup.

The chief executive of Citigroup, Vikram S. Pandit, was awarded deferred stock in the bank valued at $3.7 million based on the company’s current price, according to a regulatory filing. This is on top of his annual base salary of $1.75 million, and brings his disclosed pay so far for 2011 to $5.45 million.

Citigroup is expected to disclose the rest of his pay, cash, be it upfront or deferred, in March. In addition, while not necessarily for work performed in 2011, Mr. Pandit last year was awarded a $16.7 million retention bonus, plus stock options that could add $6.5 million to the package’s overall value.

To be sure, Mr. Pandit has gone through some lean days, at least by Wall Street standards. In 2010, he was paid just $1, a salary he agreed to take until Citigroup returned to profitability, which it did that year.

While Citigroup was profitable again last year — earning $11.3 billion — it was far from a banner year for the big bank as it and its rivals had revenues dip amid economic troubles abroad and a sluggish domestic economy. Citigroup’s stock fell 44 percent in 2011, and many employees were told this week they would be receiving no or small bonuses.

Jamie Dimon, chief of JPMorgan Chase.Randy L. Rasmussen/The Oregonian, via Associated PressJamie Dimon, chief of JPMorgan Chase.

Shares of Citigroup’s rival, JPMorgan Chase, also had a rough year, falling almost 22 percent. Still, JPMorgan’s chief executive, Jamie Dimon, was awarded $17 million in equity-linked stock for his work in 2011, according to a regulatory filing. Last year Mr. Dimon received $17 million in equity awards around this time of year and his total pay for the year came to $23 million. His total pay is expected to be roughly the same this year, according to a person close to company but not authorized to speak on the record.

James P. Gorman, chief of Morgan Stanley.Jin Lee/Bloomberg NewsJames P. Gorman, chief of Morgan Stanley.

Morgan Stanley’s shares dropped 44 percent in 2011. On Friday, it released details on all its chief executive’s pay. James P. Gorman is taking a 25 percent pay cut from 2010. Mr. Gorman will receive $9.7 million in deferred compensation for his work last year, according to a regulatory filing. This number includes $4.7 million in deferred cash and equity linked stock and an additional $5 million in restricted stock. In 2010, Mr. Gorman received $7.4 million in stock and his total compensation for the year was $14 million. These numbers include Mr. Gorman’s base salary of $800,000.

Citigroup also disclosed that its chief operating officer, John P. Havens, received a stock award valued at $3.47 million. Its consumer banking chief, Manuel Medina-Mora, got $2.64 million and its chief risk officer, Brian Leach, received an award valued at $2.36 million, according to regulatory filings.

At Morgan Stanley, pay for other senior executives was down roughly 20 percent. The wealth management chief, Gregory J. Fleming, and Paul J. Taubman, co-head of institutional securities, were both granted restricted stock valued at $3.4 million. Colm Kelleher, the other co-president of institutional securities, received restricted stock valued at $1.9 million. His grant is less because he is based in Britain and there are different requirements on the mix of his pay. Ultimately, he will receive the same as Mr. Fleming and Mr. Taubman, a company spokesman said. Morgan did not release how much deferred cash these senior executives will receive.

At JPMorgan, the head of investment banking, James E. Staley, was granted restricted stock valued at $7.8 million and he has options valued at an added $2 million. Mary E. Erdoes, head of asset management, received restricted stock valued at $7.1 million and a further $2 million in options.

Article source: http://feeds.nytimes.com/click.phdo?i=035753a40bf6486c324281bb763716c8

DealBook: As Citi Revives, Pandit Wins Big Pay Package

Vikram S. Pandit, Citigroup's chief executive, has led the bank from a federal bailout to five consecutive quarterly profits.Scott Eells/Bloomberg NewsVikram S. Pandit, Citigroup’s chief executive, has led the bank from a federal bailout to five consecutive quarterly profits.

8:58 p.m. | Updated

After spending years as one of Wall Street’s lowest paid chief executives, Vikram S. Pandit received a $23.2 million retention package that could catapult him to the top of the list.

Mr. Pandit earned a token annual salary of $1 as he steered Citigroup back into the black over the last two years. But on Wednesday, Citi’s board awarded him as much as $16.5 million in stock and options as well as a cash payment valued at more than $6.65 million as part of a special profit-sharing program for top executives.

The payouts will be spread over the next four years and are subject to Mr. Pandit’s meeting certain performance goals. They will be in addition to his regular salary and annual bonuses.

The announcement comes as Citigroup recently posted its fifth consecutive quarterly profit and completed a reverse stock split that, with the stroke of a pen, ratcheted its share price to more than $40 from $4.

Just three short years ago, Citigroup was in such dire straits that it twice needed to be rescued by the government. With the bank receiving more than $45 billion of federal aid, questions swirled about whether Mr. Pandit would remain at the helm. The large retention award seems to put those questions to rest.

“Vikram has done an outstanding job since coming on board as the financial crisis began,” Richard S. Parsons, Citigroup’s chairman, said in a statement. “This award is designed to retain Vikram as our C.E.O. and reward him for future performance benefiting the company and our shareholders.”

The retention package also could signify the unofficial end of the post-bailout pay era.

Most banks made minor adjustments to compensation practices amid the uproar over bonuses, shifting more pay into stock from cash but still awarding hefty sums. Others like Citigroup and Bank of America, which accepted multiple government rescues, needed a federal pay overseer to formally approve the awards for their 25 highest earners.

Mr. Pandit helped avert even more animosity toward his bankers when he pledged at a 2009 Congressional hearing to accept a mere $1 a year in salary until Citigroup turned a profit.

Even so, he continued to benefit from the Citi board’s largess. Throughout the crisis, Mr. Pandit was allowed to hold about $79.7 million in cash from the sale of Old Lane Partners, an investment firm he founded that was acquired by Citi in April 2007. Mr. Pandit would have to forfeit that money if he left the company before July 2011, giving the board a strong incentive to extend the retention package now.

Careful not to call it a bonus — Mr. Parsons referred to it as a “long-term, multiyear performance-based” award. Citigroup’s board broke the retention package into three parts. It also has the power to claw back any ill-gotten pay.

The largest part of the award is deferred stock valued at $10 million, which will vest in three equal installments from the end of 2013 to 2015. Mr. Pandit must meet largely subjective performance goals, including developing senior managers, satisfying certain regulatory goals like improved risk management and steering the bank toward a culture focused on so-called responsible finance.

The second part of the retention package is a special profit-sharing plan for top employees based on the company’s financials. If Citigroup’s core operations over the period earn at least $12 billion in pretax income during each of the next two years, Mr. Pandit could take home more than $6.65 million.

About two dozen or so other top executives participate in the program — including John P. Havens, Citi’s chief operating officer, who could receive almost $5.2 million. The bank earned $19 billion in pretax income last year.

Citigroup also awarded Mr. Pandit more than 500,000 options, which the company valued at as much as $6.5 million. The options carry strike prices ranging from $41.54 to $60. Citigroup shares currently trade at $41.24.

Citigroup’s board had signaled a pay increase for Mr. Pandit last fall when it granted stock awards to several of his top lieutenants and announced plans to restore his compensation so that it would be in line with other Wall Street chiefs.

In January, Citi’s board raised Mr. Pandit’s $1 salary to $1.75 million a year. The additional $5.5 million a year in retention payouts will set the stage for him to be paid as much, if not more, than his peers.

Bank of America’s chief executive, Brian T. Moynihan, received about $10.2 million in total compensation for 2010, according to Equilar, a compensation research and consulting firm. Jamie Dimon, JPMorgan’s chairman and chief executive, was awarded a $23.6 million pay package last year, making him the highest paid of any Wall Street chief. The heads of Goldman Sachs, Morgan Stanley and Wells Fargo were paid somewhere in between.

Article source: http://feeds.nytimes.com/click.phdo?i=0b7802b45ffb191fc508da250bc71fdf

DealBook: Citigroup’s Earnings Fall 32%

Vikram S. Pandit, Citigroup’s chief executive, has been engaged in an ambitious plan to overhaul the troubled bank.Tim Boyle/Bloomberg News Vikram S. Pandit, Citigroup’s chief executive, has been engaged in an ambitious plan to overhaul the bank.

7:45 p.m. | Updated

Citigroup took another halting step forward on Monday in its long march back from the brink, reporting a $3 billion profit in the first quarter, in spite of continuing losses in its mortgage unit and lackluster investment banking results.

The company earned 10 cents a share, a penny above analysts’ expectations, but down 32 percent from the comparable period a year earlier, when it earned its first profit since the financial crisis struck.

As has been the case for other financial giants, Citigroup’s revenue actually fell during the first quarter, as nearly every major region and business except Latin America experienced a slowdown from a year earlier. Over all, revenue declined 22 percent, to $19.7 billion. Expenses also continued to rise, in part because of new business investments as well as higher legal costs.

Citi’s results were buoyed by the release of $3.3 billion in reserves that had previously been set aside to cover losses on credit cards and other loans. That helped offset deeper losses in its domestic mortgage business and a weaker performance from its trading and investment banking groups.

“Our core businesses performed well despite the difficult economy,” Vikram S. Pandit, Citigroup’s chief executive, wrote in an internal memorandum to employees. “We’ve come a long way — and we continue to move forward.” Mr. Pandit is expected to give a fuller report on Thursday at Citigroup’s annual shareholder meeting in Midtown Manhattan.

The bank is also planning a 10-for-1 reverse stock split early next month that will almost certainly draw criticism from stockholders who argue it is little more than a symbolic effort to raise the bank’s stock price.

On Monday, when the broader markets fell sharply, the company’s stock was unchanged at $4.42 a share.

Citigroup’s earnings were tempered by the same factors that weighed on the earnings of Bank of America and JPMorgan Chase, which reported their first quarter results last week.

Traditional banking businesses have been hit by rising foreclosure costs, new financial regulations and a slowdown in growth for home loans. Wells Fargo and several big regional players are expected to report similar trends when they announce their results later this week.

But Citigroup, whose stock price plummeted to below $1 during the financial crisis, is under intense pressure to show improvement. For the last three years, Mr. Pandit has been engaged in an ambitious plan to overhaul the troubled company, streamlining its sprawling operations and changing it from a global financial supermarket into a leaner and more focused lender.

Citi is close to completing its plan to shrink its balance sheet. Today, the pile of assets that Citi plans to sell or divest is down to $337 billion, less than half of its peak of $827 billion in early 2008. CitiFinancial, its large consumer lending franchise, is one of its last major businesses to go on sale, and several private equity firms are in the final stages of bidding.

The bank also identified assets worth an additional $12.7 billion that it will sell in order to free up capital, resulting in a pretax charge of $709 million when it booked the assets at their current market value.

“We are very much on track,” John C. Gerspach, Citigroup’s chief financial officer, said on a conference call with reporters. “We are going to continue to make progress but it will be at a reduced pace from where we were in 2010.”

Federal regulators acknowledged Citi’s progress when they approved Mr. Pandit’s plan to reinstate the dividend in early May at a token one-tenth of a penny per share. But unlike several major competitors that announced large share buyback programs, Mr. Pandit has said that the bank is unlikely to buy back stock until sometime in 2012.

Meanwhile, the company faces rising costs, especially in its loan servicing business. And unlike JPMorgan Chase, Citigroup did not book a large upfront charge to reflect the higher operating costs required to meet the new servicing requirements outlined in a regulatory enforcement order issued last week.

Instead, Citi officials expect operating costs for the mortgage business to rise about $25 million to $35 million per quarter as it hires as many as 500 new employees to handle the increased volume of foreclosures.

The bank also expects to take additional charges tied to the overhaul of its servicing business, which could total as much as $40 million to $50 million over the next few quarters.

Citi, like most of its big competitors, also faces an array of legal claims from Fannie Mae, Freddie Mac and other investors who say that the bank sold them securities backed by faulty mortgage loans. Mr. Gerspach said Citi had added about $122 million to its reserves to cover those potential liabilities.

Citigroup’s investment banking profit fell by 46 percent, to $1.7 billion, from a year ago, when the trading environment was much stronger.

Investment banking fees fell 18 percent amid a slowdown in its merger advisory business as well as slower stock and bond underwriting.

Trading revenue from its fixed income, commodities and currency group, which long drove the bank’s growth, dropped 29 percent. Trading revenue from equities fell 19 percent.

Overseas, the news was mixed. For several quarters, the bank’s consumer businesses in Asia and Latin America have been one of the few bright spots.

Loan losses eased more quickly in those regions than in the United States, and corporate lending has been picking up in those areas. Nearly 70 percent of earnings from Citi’s core operations came from overseas in the first quarter.

This post has been revised to reflect the following correction:

Correction: April 18, 2011

An earlier version of this article misstated the size of the first-quarter loss at Citi Holdings. It reported a loss of $608 million.

Article source: http://dealbook.nytimes.com/2011/04/18/citigroup-earnings-fall-32/?partner=rss&emc=rss