Monday, 19 November 2012

DealBook: Citigroup Investors hope clarity on the Bank's path quickly

Vikram Pandit did not overhaul Citibank fast enough, or aggressively enough, in many investors' eyes.Jemal Countess/Getty Images of Pandit TimeVikram not overhaul Citibank quickly enough or aggressively enough in the eyes of many investors.

As Michael l. Corbat takes up the reins at Citigroup, analysts and investors have a message for him: shrink your bank, and be much more transparent, as you do.

Mr. Corbat will take over from Vikram s. Pandit as Chief Executive Officer of Citigroup four difficult years after the financial crisis. During this period, Mr. Pandit Service Banking behemoth and attempted to focus the Citi of the firms he felt it could do best. But increasingly, many investors felt Citis overhaul was not bold or fast enough.

"Citigroup has acted as if it is too big to care," said Mike Mayo, an analyst at CLSA, a brokerage company. "This means that they are too large to be sensitive to shareholder concerns."

Dissatisfaction with the Citigroups progress motivated shareholders to vote against a $ 15 million salary package for Mr. Pandit in April. The vote came shortly after the Federal Reserve killed Citigroups plans to pay capital to shareholders, a damning evidence that legislators still weren't comfortable with the Bank.

Since these expressions of dissatisfaction is Citigroups shares significantly higher, although they are still down 89 percent, as Mr. Pandit took over in December 2007. Stock building trades on a pitiful valuation reflects two dominant views on the markets: Citigroup's transformation has a long way to go, and its annual accounts can be opaque.

The New York Times

Although relatively unknown to shareholders, Mr. Corbat starts with a reputation as a tenacious Executive with a deep knowledge of Citigroup, where he has worked for nearly 30 years. He even got good reviews from people who have been skeptical about Citigroup and its management. Sheila c. Bair, former head of the Federal Deposit Insurance Corporation, which clashed with Mr. Pandit, knew Mr. Corbat from interactions during the financial crisis.

"He was involved in several meetings with us," Ms. Bair said, adding, "he was prepared, and he knew his stuff."

Some analysts believe now, Mr. Corbat could open the door to more radical move at Citigroup.

"I think that this is a genuine and long-term positive for Citi," said Gerard Cassidy, a banking analyst with RBC capital markets.

Still, Mr. Corbat perhaps impress quickly, given the pent-up frustration among shareholders. His first public conference calls as CEO on Tuesday was not encouraging on that front. He seemed to disappoint analysts who wanted to hear Mr. Corbat express a greater desire to change things. Instead, he said, "today's changes do not change the strategic direction for Citi, which we believe is a good thing."

In a memo to employees on Tuesday sounded Mr. Corbat more urgently. He wrote: "we must deliver sustained profitability, improved operational efficiency and shareholder returns."

Part of Mr. Corbat jobs will get more out of Citigroups best results operations. Many of its international lending organizations consistently do well, and he can look for ways to ensure investors give greater recognition to this force.

An idea may be to sell minority holdings in these operations in foreign exchanges, something that Spanish bank Santander has done recently with its Mexican unit. If these shares perform well, it would highlight the value in these companies and maybe lift the Citigroups stock. Asked about that idea Tuesday, said Mr. Corbat, "I want to look at these things and see what the numbers say."

Burning question, however, is whether he has the will to get out of businesses that the Bank does not excel in, even though the short-term costs are high. Mr. Cassidy, the analyst, said Mr. Corbat should sell any business line could not achieve the kind of returns to shareholders is expected. Citigroups Chairman, Michael e. O'Neill, reduced aggressive size of Bank of Hawaii when he led it.

"He shrunk the Bank with 30 percent; It is what Citi has to do, "Mr. Cassidy said.

In particular, some investors Citigroup be faster on selling assets in Citi Holdings, bad Bank Citigroup set up for its unwanted and loss-making assets. Mr. Corbat ran Citi Holdings until the end of last year. Faster sales can mean Citigroup would not get the best price possible for the $ 171 billion in assets in Citi Holdings. It could lead to higher losses when the sale took place.

But selling assets faster could free up capital the Bank stops there. This could in turn lead to a major improvement of Citigroups regulatory capital ratios, which investors look very closely. Banks can show they have little trouble meeting these ratios often get better valuations on their shares.

Citigroups investment bank are other obvious targets for shrinkage. Right now, it is huge. Department for "securities and banking" in Citigroup has 903 billion dollars of assets. It is only slightly smaller than Goldman Sachss assets. And Citis investment bank revenue has been uneven since the financial crisis.

The unit also is seen as a black box, something Mr. Corbat will have to deal with if he wants to regain investor confidence, said analysts. Citigroups revelations not as detailed as those of some other banks. For example, publishes each quarter, Goldman Sachs a critical number that shows how much profit it makes on the capital.

But Citigroup does not, for its investment bank; It simply tell not outsiders how much capital it has implemented in this device. As a result, it could make unproductive investments in Wall Street operations without shareholders knowing. This could be the case in other business areas as well.

Self created for Mr. Corbat may be that if he increases the publication, can investors shy away at any alarming numbers and dump stocks. He may even so could result.

"They have open up the kimono," Mr. Cassidy said.

Perhaps Mr. Corbat will Citigroup's quiet revolutionary, a leader who is ready to make a bold move to win, and win back shareholders. He offered up a button-down remark on Tuesday that could provide a tidbit hope to shareholders who are counting on him to double Citigroup's remodeling. "I would not minimize the impact you can have on a place," he said.

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