Will he be able to show real change, or will it be just more of the same? That’s the question facing Citibank (C) Chief Executive Vikram Pandit on Thursday as he will appear before a congressional panel in charge of overseeing the U.S. government’s rescue of battered financial firms.
The inquiry will surely be difficult for Pandit who faces questions regarding the pace, and scope, of changes at the troubled financial giant.
Mr. Pandit is expected to say that much has changed since he took over Citi in 2007. He will cite that the company looks and is run very differently than when he arrived. The positive news will include:
• Lopping the size of its balance sheet by 21%, or $500 billion
• Selling more than 30 businesses deemed poor fits with the company’s strategy
Mr. Pandit also is expected to tell the oversight panel that Citigroup made $160 billion in mortgage and credit-card loans last year and helped more than 800,000 families avoid foreclosure.
However, Citi is still considered “the nation’s bank.” The New York company still has $25 billion in money from the U.S. Treasury, which owns a 27% stake that makes some lawmakers leery about taxpayer exposure to the financial giant.
And despite the progress they’re making, Citigroup reduced the overall size of its loan portfolio by 15% last year, or $102.7 billion, according to its annual report filed last Friday.
A spokesman for the panel said Mr. Pandit will be prodded about whether Citigroup executives are running the company in any way that assumes an implicit government backstop, as well as signs that Citigroup is “getting credit flowing.”
Meanwhile, regulators are pressing executives to speed up its balance-sheet shrinkage by selling assets marked for sale and allowing loans to mature, according to people familiar with the matter.
The outside pressure and resulting drag on Citigroup’s stock price aren’t likely to ease until the company escapes the government’s grip.
Citigroup needs to “rid itself of U.S. government meddling and influence,” including “pay limits” and “lending pressures,” said David Trone, an analyst at Macquarie Capital. That would help Citigroup “regain independence and remove a key overhang to the stock.”
However, in an interview with the Wall St. Journal, Elizabeth Warren, chair of the Congressional Oversight Panel, said that the real issue with Citibank is not when they pay back TARP, but in making sure their balance sheet is healthy.
This comment is supported by some Citigroup shareholders who contend that the U.S. government’s stake could be viewed as a positive. David Ellison, manager of FBR Large Cap Financial Fund, which held 175,000 Citigroup shares as of its latest report, said the government shadow could help motivate management to “simplify” its balance sheet.
“There’s not a lot of downside to the government ownership,” Mr. Ellison said.
In an employee meeting last month, Mr. Pandit said it would be difficult for banks generally to entertain ambitious growth plans “in this ‘too-big-to-fail’ environment.” But as Citigroup itself sells additional assets, it can “release” and “redeploy” capital for growth in areas such as emerging markets, Mr. Pandit said.
