Still No Vision at Citigroup

Another day, another 6,500 job cuts at Citigroup's (C) investment bank. (For reference, that's pretty much exactly the total number of employees that Salomon Brothers had in the early 1990s. Now, it's just 10% of the investment-banking workforce at Citi.) But for all that the cuts will be big, it's worth pointing out that they're still tactical rather than strategic.

Underperforming divisions are being pared; outperforming divisions like "Citigroup's lucrative transactions-services arm" (no, I'm not entirely clear what that is either) will be spared. This is all pretty standard stuff for any investment bank: if revenues are falling, and you want to keep your payroll down to about 50% of revenues, then you're going to have to fire quite a lot of people.

What we're not seeing here is any indication of how Citi's investment bank fits into Vikram Pandit's vision for Citigroup as a whole. Are some parts more strategically important than others? Is Citi making any long-term bets on the future of the banking industry or even on its own future direction? Is the evolution of Citigroup going to be driven from the top down, by senior executives, or is it rather going to be driven from the bottom up, by dint of whichever groups happen to be making a lot of money at the time?

At the moment, clearly, it's the latter. And hopes for any sign of the former are rapidly evaporating. Cost cutting isn't a strategy, it's a tactic. I wonder whether Pandit really understands that.

Comments

[MicahelLofrano]

It unfair to characterize Pandit's tactics as ill-advised. Of course it a tactic. What else is he to do? You know the old saying: When your ass deep in alligators, it is hard to remember that the reason you came in the first place was to drain the swamp. Pandit inherited a mess from a pretend-banker who thought it was so much fun playing idiot with other people's money (read as Chuckie Prince). Plus Pandit had deal with as incompetent and detached BOD as you likely see. Chairman and political hack, Robert Rubin, used these sage words when Prince "retired": " I am in complete agreement and have complete confidence in the direction Chuck has taken the bank." This was the management he inherited. A chairman, and the BOD that elected him, that does not even have the good sense to keep from uttering platitudes that make him look the idiot.


Is Pandit a good CEO? The right man for the job? I don't know. But his job right now, is to stay afloat. He knows, I believe, there is much more potential trouble on the horizon. He may want to do more, but all he can do at the moment is bail water and hope. There are financial storms a plenty on the horizon, enormous storms. He would do well to see to it the C is not some casebook example taught in business schools of how a financial giant slipped beneath the waves.

BTW, I took a bath holding C's stock. My most precipitous losses coming under Pandit's reign. Still, you can't blame the man for this mess. Not yet, anyway.

[User 143885]

Felix,

I have read a lot of your articles and have a lot of respect for journalism. I think you are extremely well researched and bring very concise and fundamentally accurate points of view.

That being said, I think you are being a little bit presumptuous in this particle piece. You often seem to have extremely negative views on Citigroup to the point of being biased at times. Why is it that you feel Mr. Pandit owes you some sort of grandiose unveiling of ultra strategic plan for reconstruction of the empire volume 6?

I think what we do know is:
1) He walked into a toilet of inefficiency.
2) He is taking his time evaluating Cit’s various business lines, and restructuring as he sees fit.
3) Anyone can clearly see his doing a lot more than simply laying off a few bodies to “tactically” keep his expenses in proportion to his revenues. He has restructured the Nikkei unit, sold their leasing unit, unloaded a large number of assets, is on his way to unloading the German banking branch, and closed old lane while at the same time raising capital and purchasing a Brazilian brokerage.
4) He is shuffling the deck, moving into markets he likes and out of markets he dosent, building capital strength to make moves as he sees fits and trying to trim off those parts of the business which don’t fit.

I think the worst thing he could do is lay out his A, B, C road map plan to bankruptcy. Please don’t forget “the mind that has conceived of a plan of living must never forget the chaos against which that plan was conceived.” Like war, most plans fall apart the minute you implement them and I think his plan is to make Citi agile enough to adjust to changes (chaos) in the global market place that will present opportunities in the future. As much as you may want a vision of what those opportunities are, no one will realize what they are until they are here.

For what its worth (which is not much) I really like what Mr. Pandit is doing and I think I can see what his vision is. Its one that doesn’t make rah rah announcements of stupid plans just so people can feel “secure” and have something to further criticize him on. It something which is more intelligent and flexible than any straight line from X to Y.

The bard may have put it best and I can understand why Mr. Pandit may can resent the idea of having to “Must, Like a whore, unpack his heart with mere words and fall a cursing like a very drab”

This is most brave,
That I, the son of a dear father murder'd,
Prompted to my revenge by heaven and hell,
Must, like a whore, unpack my heart with words,
And fall a-cursing, like a very drab,
Best’
Alex Murray
Alexander.w.murray@gma...

[arkay]

Felix,

You are back again with your negativity on citi. Currently the market sentiment is against financials. So any news is bad news for citi. Dont expect miracles? Citi has had prolonged periods of inefficiency during Sandy Weil and Chuck Prince. You can only make progress when the market sentiment and fundamentals support you.

Citi is one of the most recognized global franchise. It will recover well and is well positioned to take advantage of its global reach.

[User 143885]

Seriously though; stop playa hatin'

like it's his fault that the monoliners got downgraded and now he needs to take another 2billion dollar MTM loss because of it. What do you want him to do; he did not purchase a single CDS trade fromthose guys...he's justing get kicked in the teeth as a product of it.

Give the guy a break and get rid of that PhD(playa hatin degree).

AWM
Alexander.w.murray@gma...

[Gautam]

It doesn't matter too much for wall street - Citi has proven itself to be a textbook stock affected by market perception far more than others in the sector - when the Financial sector takes a hit, Citi gets beaten.

We can trust that Citi will hover between $17 - $25 until perception about Financial, oil, and other factors improve. Citi remains a stock to be valued at $30 in my opinion.