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When Citigroup (NYSE: C ) turned in its first-quarter earnings report, the stock initially went wild. While things turned nasty shortly thereafter, it certainly wasn't because Citi had a disappointing report card. Indeed, the megabank knocked aside analysts' predictions on both earnings and revenue, giving CEO Michael Corbat a nice big pat on the back after a full quarter as the new kid on the block.
While Corbat deserves credit for some of the good news contained in that announcement, one area of Citi that was given special attention by former CEO Vikram Pandit -- investment banking -- truly shone, making the whole of the company look spiffier than it would have otherwise.
Decisions of the past are creating profits now
It was on Pandit's watch that Citigroup hired high-flying UBS investment banker Stephen Traber back in mid-2010. Trauber was well known for bolstering UBS' energy investment division, and brought along his own team when he joined Citi. Although Trauber noted that the move wasn't motivated by money, the pay package was to die for: A total compensation package that could reach $30 million over a three year period.
A hefty investment, to be sure, but it is paying off in spades now. Citi's advising fee income for mergers and acquisitions shot up 84% from the year-ago period, capping three straight quarters of rising revenue from that sector. Overall, revenue from trading and investment banking increased 31% year over year. The new team has hoisted Citi higher in M&A global rankings this year, as well, where Citi now holds the No. 5 spot, compared to a lowly No. 11 ranking in 2012.
Despite feelings that Pandit failed Citigroup and was punished for that by being unceremoniously pushed out the door last October, the former CEO was far from a total wash-out. Though the bank's stock plummeted during the financial crisis, its share value has risen over 80% since last June, which was well before Pandit's exit. And, even though his pay package incited a shareholder revoltlast spring, it must be noted that he received token pay -- at his own request -- for the years 2009 and 2010, while he shed billions in nonperforming assets and helped shape the bank back into a profitable enterprise. By contrast, Corbat was paid $11.5 million last year, plus a bonus.
Without a doubt, Pandit made some blunders, such as the loss on the sale of Citi's interest in Smith Barney, the brokerage firm it formerly shared with Morgan Stanley (NYSE: MS ) . Also, the disputed pay package of $15 million, which was measurably higher than that for the CEOs of more profitable peers Morgan Stanley and Goldman Sachs (NYSE: GS ) , was obviously seen as overblown. Even Bank of America's (NYSE: BAC ) Brian Moynihan had shareholders' blessing for his -- albeit -- much smaller $7 million pay package less than a month later despite lingering mortgage-related problems and boisterous protests outside the meeting's doors.
But, as investors know, a company is always molded by its history, both positive and negative. Despite his eventual unpopularity, Vikram Pandit helped form Citi into the recovering financial entity that it is today -- and it's only fair to give credit where credit is due.
Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and there's a considerable amount of uncertainty after a shocking management shakeup. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot on your watchlist, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.