Here's a juicy tidbit to add to the media circus that is currently surrounding the third-quarter earnings reports of the megabanking sector: A shakeup at Citigroup (C 5.22%) is the likely reason for the CEO's sudden departure.
No news leaks on this one
The announcement that CEO Vikram Pandit would be resigning was a surprise to just about everyone, and it made me wonder how this shocker could have been kept under wraps, particularly during earnings season. After all, as the Wall Street Journal reported just a few weeks ago, Pandit seemed to have every intention of staying with Citi for some time. Although the article mentions that Citi's new Board of Directors had directed Pandit to begin the process of choosing a successor, there seemed no inference that Pandit's time at Citi was limited.
Now, the announcement by Citi's board of the vote to appoint Michael Corbat as Vikram's replacement is supplemented by a tweet by CNBC's David Faber that the change was actually the result of Vikram's firing -- an event that happened within the last 24 hours. The exit appears to have been unplanned -- which accounts for the lack of a news leak.
Dust-up with board results in Pandit's ouster
The Journal reports that a disagreement between Pandit and Citi's board over "strategy and operating performance," was the cause of the shakeup, which sounds more like a resignation-in-lieu-of-firing scenario. Citi's Chief Operating Officer and close associate of Pandit, John Havens, resigned as well.
Obviously, there was some sort of difference of opinion in either the performance or direction of Citi. The Q3 earnings news revealed that Citi's balance sheet had been hit with an 88% drop in net income, reflecting an increase in debt levels and charge-offs tied to its interest in the Morgan Stanley-Smith Barney brokerage, currently being sold to Morgan Stanley (NYSE: MS). The stock didn't seem to suffer after the earnings report, though, and there was some positive news -- such as an increase of 5 basis points in its net interest margin, versus an expected decrease of 11 bps. Both JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), by contrast, had reported constricted net interest margins in their Q3 reports, with Wells' plunging 25 bps.
What now for Citi?
Some analysts are already praising the board's choice of Corbat, who has been with the company for nearly 30 years, heading up its divisions in Africa, Europe, and the Middle East. The company notes that Corbat has been instrumental in divesting over $500 billion of Citi's assets.
Citi's stock has been on the rise this morning since the news, which bodes well for investor confidence in the move, despite the suddenness of the announcement. I think that investors see this incident as a new start for Citi, a perception with which I agree. Time will tell whether or not the change behooves the company, but it certainly looks like it's off to a good start.
